2009 SUGGESTED SOLUTIONS TO GET AN A1

Question 1

(A) Outline, using an example, the role of interest groups in the business world. (10 marks)

An interest group is a representative organisation outside of the political system,

which puts pressure on other bodies to achieve an aim.

This pressure can take the form of demonstrations, bad publicity, letters,

petitions, strikes etc. They attempt to influence policy decisions, which affect

their members and are also called pressure groups.

EXAMPLE Greenpeace put pressure on industry to manage waste disposal properly

(B) Discuss how consumers may benefit from the existence of a competitive relationshipbetween producers. (15 marks)

A competitive relationship exists when people inside and outside the business have common areas of competition and are competing against each other e.g. Coca Cola v Pepsi

They compete on a basis of price quality and labour, This is a winner-loser

relationship. A relationship can be competitive and co-operative in an ever-changing

business world.

Price

Consumers benefit from lower prices as producers attempt to gain market share by

competing on a basis of price.

Quality

Standards of quality are improved due to the existence of competition and this

benefits customers who get more for less.

Explain the term ‘employment discrimination’ as set out in the Employment EqualityAct 1998.

List four distinct grounds on which discrimination is outlawed under the Act.

Discrimination is treating one person in a less favourable way than another is been has been

or would be treated and it affects:

Access to employment

Conditions

Training

Promotion

Collective agreements

Employment agencies

Advertising

Grounds

Age

Gender

Sexual orientation

Marital status

(ii) Evaluate the role of the Director of Equality Investigations in resolving complaints of discrimination in the workplace. (35 marks)

(ii)The office of the director of equality investigations was set up under the Act and

provides a place of redress.

The Director aims to reduce levels of discrimination in Irish workplaces

The director works with Equality officers and equality mediation officer

The officers have wide power and the victim has the right to certain information.

The director has the power to enter premises in pursuit of information.

The director has highlighted the existence of discrimination in Irish workplaces.

Financial awards to victims act as a deterrent and people in general are very aware

of the strict legislation.

EVALUATION In my opinion this agency has helped to reduce levels of employment

discrimination .It has raised the awareness of the problem and fines act as a

deterrent

Question 2

(A) Evaluate ‘franchising’ as a form of business ownership for a new enterprise.(20 marks)

A franchise is an agreement that permits the individual accepting the

agreement (the franchisee) to use the established name, logo, methods of

operation, marketing strategy and product of the existing business by

agreement with the owner (the franchiser).

There are economies of scale in areas such as centralised purchasing of stock,

national advertising and promotions. These are cost savings

There is instant recognition of the business name, so it is easier to attract

customers.

The management team receives valuable professional training and advice

from the franchiser.

EVALUATION In my opinion the business formula is tried and tested so there

is less risk of the business failing. 90% of new business that are franchises are

still open after 5 years

(B)“Business is not only about doing things right, it is also about doing the right things.”

Discuss the social responsibilities that a business has to its various stakeholders.(20 marks

Social Responsibilities of Business

Social responsibility is a theory that recognises that business has obligations to society and profit maximisation must incorporate the fair treatment of stakeholders.

As businesses exist in Society and are run by people who form part of a social organisation,

it has been recognised that being socially responsible is a worthwhile cost for a business.

A business can adopt a passive approach by obeying all regulations or adopt a more

proactive approach whereby it takes a deliberate action to do the right thing by suppliers.

A business affects its stakeholders through its actions.

Business has responsibilities to the following:

Investors

A business has a responsibility to its owners and by creating wealth in the form of profits. It

should pay the highest dividend possible. It should safeguard all assets and avoid reckless

behaviour

Example high risk lending at Anglo Irish Bank was not socially responsible to investors.

Employees

Workers should be treated fairly and should be paid a fair wage. Conditions should be

improved and health and safety issues should be a priority. Employees should be looked

upon as a valued resource for the business

Bank of Ireland measures job satisfaction and connectivity to the job. It also believes in

providing state of the art equipment for employees.

Customers

The business should not exploit and manipulate customers.

Products should not be dangerous and firms should refrain from harmful business practices.

The customer contract should be honoured and extras such as guarantees should be

offered.

Jim Langan furniture staff misleading customers over status of the business as it was on

the point of liquidation

Society

Business and society should sort out all conflicts and contentious areas and a happy medium

of good for business / good for society should be reached. The firm should give back to the

community and engage in environmentally sustainable development. Do we have low

unemployment and high pollution or vice versa?

Shell gave €450,000 in sponsorship and donations to Belmullet GAA club in Mayo in 2010

(C) Discuss how the Irish Government could use the tax system to create a positive climate for business in Ireland. Use examples to illustrate your answer.

(20 marks)

Corporation tax

This is income tax on a companies profits.

Certain expenses are allowable eg. Donations to charity and approved spending on

Research & Development.

The low rate is 12.5%. The other rates are 10% and 25% from Jan 1st 2002.

A low rate attracts MNCs and is good for business

Capital Gains tax

This is a tax on the profit made from the disposal of an asset e.g. sale of land,

houses or shares

The system allows the person or business to take inflation into account and any

improvements made to the asset.

The standard rate is 36%.

Each individual has an exemption of €1270

A low rate and a simple system is good for business

Value Added taxThis is an indirect tax.

It is a tax on consumer spending

Taxable persons for VAT registration occur for

Goods over €55,000

Services over €27,500

A business person collects VAT on sales and deducts all VAT paid out on purchases.

The difference is forwarded to the Revenue Commissioners every 2 months.

Low VAT rates stimulate business

PAYE

A low rate of Pay As You Earn tax on employees is good for business as it increases the

supply of labour

Question 3

“The EU is less than half the size of the United States, but its population is over 50% larger. In factthe EU population is the world’s third largest, after China and India.”

(A) Evaluate the opportunities and challenges for Irish business in the EU Market.(30 marks)

Opportunities

Markets

Free trade has given us access to huge international markets and this allows a growth level,

which would not have been possible in the small Irish market .The EU market is third largest

in the world.

Free movement of services, labour and capital

The Irish construction sector benefited hugely from the availability of Polish and other EU workers during the boom years.

Business may also source the best investment/borrowing opportunities in EU.

Challenges

Competition

Traditionally the Irish government would have protected the “infant” industry from the full

force of competition through trade barriers. Deregulation of EU markets means that only

competitive firms will survive and this may affect employment here.

Costs

Our geographical location at the edge of Europe means that we have extra transport and

great distribution costs. We should hope that a focus on quality and improvements in

technology and logistics would help us overcome this challenge.

Currency Fluctuations

A large portion of our trade is with the UK and the US and therefore we are susceptible to changes in the exchange rate which can add to profits or erode profits e.g. €50 = £31.50 in 2006 but in 2011 €50 = £43.50

EVALUATION In my opinion access to a single market without barriers has been crucial for a small open economy like Ireland that depends on export led growth

(B) (i) Explain the term ‘global marketing’ and name two global businesses.

Global marketing is the process of conceptualising the product to reach a single

international market based on a product or service with universal demand. It takes a

business to the next level.

2 EXAMPLES

Nokia

Marlboro

(ii) “A business involved in global markets faces additional marketing challenges.”

Discuss these challenges, using examples to support your answer.

(30 marks)

Challenges for Global business.

Types of markets

Markets of the world are not homogenous.

The single biggest problem facing International Business is the different needs and

wants, tastes, beliefs, customs and laws of foreign markets e.g.

- No beef in “Big Mac” in India (Chicken)

Language problems

Translation costs and misinterpretation of the words are a major challenge

for firms in global marketing

* IKEA once tried to sell a workbench called FARTFULL - not a hugely popular product for obvious reasons.

A need for excellent co-ordination.

This is to take advantage of global cost-savings as there is a potential for diseconomies of

scale in huge firms. Irish firms cannot compete with the promotional spend of global firms

as the advertising budgets are colossal

Localising

It is important to conduct research on the customer's reaction to a new product.

Research and development (R&D) is essential in order to adapt to changing market

situations and customer needs.

Question 4

(A) (i) Explain the term ‘delegation’.

Delegation involves the assignment of authority to another person, generally from a manager to a subordinate, to undertake a specific work task or project. Successful delegation requires that the manager articulate the following clearly to the subordinate:

Details including deadline of the assigned task/project

The extent of the authority delegated, including reporting requirements to the manager

The manager must also ensure that the person to whom the task/project has been delegated has the necessary skills and competencies, and is provided with the necessary resources to complete the task/project.

The ultimate responsibility for the task /project remains with the manager.

(ii) Describe the benefits of delegation for a manager.

More efficient completion of tasks or projects, as manager is not required to do all the work.

Task/project may be completed to a higher standard due to level of personal accountability provided by delegation.

Increased employee motivation from job enrichment/ improved staff morale/better work.

Managers can prioritise tasks that need their attention, thereby having more time for the completion of these tasks and for managing i.e. planning etc.

Higher skilled workforce will provide greater flexibility for manager.May improve work-life balance for the manager- better distribution of work.

(B) Analyse the implications for a business of a manager adopting a Theory X approach to managing.

Theory X Manager believes that workers:

Dislike work

Have no ability

Should be tightly controlled

Any manager dealing with Theory X people is a controller using the Autocratic

approach

Characteristics/Implications of a Theory X Manager may include:

Manager keeps control/ resulting in possible conflict between management and employees.

Little trust/employees less likely to use their own initiative and behave like intrapreneurs

No consultation when making decisions leading to/lower productivity and lower quality

Little delegation and this leaves/fewer opportunities for employee promotions.

(C) Repeat of 2007 Question

Question 5

(A) (i) Explain the term ‘business alliance’.

Business alliances are used by many companies to expand. They may take the form of joint

ventures where two companies come together for a particular purpose. This is not a merger.

The two companies remain separate entities. Examples of alliances are Ryanair and Hertz

(ii) Illustrate the advantages of an alliance as a form of business expansion.(20 marks)

The benefits of strategic alliances are:

• Easy to establish

There are little legal formalities or complicated documents to submit.

• Relatively easy to get out of

It is easy to exit the agreement and there is usually provision for mutual agreement

•There is increased recognition of brand names

Each brand is strengthened and there are mutual benefits for the firms which helps

to generate sales

(B) Evaluate Debt and Equity Capital as sources of finance for business

expansion. (20 marks)

Equity capital = Ordinary Share Capital + ReservesAdequate investment by the owners makes it easier for the company to borrow money to finance expansion.

Debt Capital = Preference Shares + Long Term DebtThis money is borrowed from banks and interest is repayable annually

Debt and Equity Finance may be compared as follows:

Risk

Equity carries no real risk to the owners whereas if debt is not repaid a receiver may be appointed to recover the debt

Income

Debt carries annual interest and this erodes profits whereas equity people might receive a dividend but only after a profitable trading year

Control

Equity funding for expansion usually dilutes the control of the existing shareholders whereas funding by debt protects the control of the existing owners

Evaluation

In my opinion funding by equity is less risky as there is no fixed interest or specific repayment date for the funding

(C) (i) Using the figures given below calculate the Debt/Equity ratio of SES Ltd for the years2006 and 2007. (Show your workings)2006 2007Long Term Loans 300,000 364,000Ordinary Share Capital 450,000 450,000Retained Earnings 50,000 70,000

The Debt Equity Ratio provides an indication of the financial structure/gearing of the business. The debt equity ratio is calculated as follows:

Formula Debt Capital: Equity Capital

2006 2007

Debt/Equity Ratio 300,000: 500,000

0.6:1

364,000 :520,000

0.7:1

(ii) Comment on the significance of the trend in the Debt/Equity ratio over the two

years for the existing shareholders.

The Debt Equity ratio in 2006 was 0.6:1 while the Debt Equity Ratio for

2007 has increased to 0.7:1. This may be a worrying trend for the existing shareholders.

Significance of the trend for existing shareholders:

Higher interest repayments may reduce profits.

Where profit levels are falling, the payment of dividends to ordinary shareholders will be adversely affected

Question 6

(A) Illustrate how the following developments in Information and Communications Technology (ICT) have impacted on business:

(i) Electronic Data Interchange (EDI)

(ii) The Internet and the World Wide Web

(iii) Video-conferencing. (20 marks)

Answer

Electronic Data Interchange

Is the use of structured documents sent from one computer to another via the

telephone system.

Businesses need to have compatible systems and it may prove to be expensive for

small businesses

E.D.I. brings substantial savings and benefits to organizations which implement it. Effective use of E.D.I.

reduces the delays caused by postal paper chains avoids the need to re-key data and therefore saves time and reduces errors avoids the cost of the creation, recording and storage of paper documents and

records

The internet and world wide web

is a vast store house of information about a huge array of topics which includes words

pictures diagrams etc at locations called web sites. It is a network of networks. The

worldwide web (www) is a subset of the internet and is a huge information source.

To use the internet a personal computer is needed and a gadget called a modem which is

the link to the telephone system.

Uses of the internet

Electronic mail is fast replacing the traditional slower mail system.

Speed is a huge factor and the distance factor is also crucial.

It allows a business to send and gather information.

It facilitates shopping on line.

It facilitates new opportunities for business e.g. On- line poker.

Videoconferencing

Is a system which allows a live link up via satellite which means that meetings can be held

simultaneously but at different geographical locations. It is a virtual face to face meeting.

Benefits

It eliminates travel costs and time

Meetings can be held at short notice

Information can be exchanged

Proceedings are recorded

(B) Discuss the benefits of Total Quality Management ‘TQM’ to a manufacturing business.

(20 marks)

Total Quality Management is a systematic approach whereby quality permeates the entire firm and includes all employees, all resources and all of the various departments.

It focuses on a customer- orientated approach and is based on continuous improvement, which ultimately satisfies more needs and wants of customers and their satisfaction is the only lasting means of business success.

It reduces waste and associated costs as there will be fewer mistakes, fewer delays and a better use of time. This also improves the firm’s profits.

There is greater job satisfaction as empowerment, intrapreneurship and participatory decision-making are encouraged. Employees are faced with greater challenges and labour turnover is usually reduced.

(i) Explain the benefits to Buttercup Garden Centre of preparing a Cash Flow Forecast.

(ii) Based on the information provided above, outline how Buttercup Garden Centre could

improve the Cash Flow position of its business.

(20 marks)

A business prepares a cash flow forecast for a number of reasons(i)

1. To predict the amount of cash flowing into and out of the firm. This will allow us to anticipate times when there may be a cash flow problem.

2. To help to predict start up cash requirements for business. It shows signs of good management and will impress a bank manager.

(ii)

Capital Expenditure

It should spread the equipment over a longer period of time as it will be used over several

years and this will free up badly needed cash

Control of Overheads

Wages increase from €6000 to €7500 (a 25% increase) from October to December, yet sales

fall in the same period. Buttercup Garden Centre needs to review and control the amount of

money spent on wages.

Question 7

Olympian Ltd is a company that produces a range of high quality branded sportswear. Following a lengthy market research process, the firm is now expanding its business to include a new range of Hoodie Tracksuits, aimed at the teenage market.

(A) Outline the stages involved in the development process of the new range of Hoodie

Tracksuits.

(20 marks)

Idea Generation: Initial ideas for the new product are thought up. It may take the form of

brain-storming.

Product Screening: The ideas are vetted and the impractical and unworkable ideas are

eliminated, leaving the most likely one for further examination and development.

Concept Development: This involves turning the idea into an actual product or service that

will appeal to customers. A unique selling point (USP) is identified which will distinguish it

from other products.

“A tracksuit with a hood for sports and casual wear”

Feasibility Study: This is carried out to assess if a product is viable. It looks at whether it can be produced technically and will it be profitable. It answers question like:

What demand is there

What will it cost

Can the business afford it.

(B) (i) Explain the term ‘Market Segmentation’, illustrating your answer with reference

to Olympian Ltd.

Market segmentation involves dividing up the market into clearly identifiable sections,

which have common characteristics. It allows a firm to identify who their target market is.

Olympian may segment the overall market for tracksuits either by demographic or

physiological methods. The teenage market has been identified as a target market for the

Hoodie Tracksuit – this market may be further segmented e.g. males and females, sporty and

non-sporty types to help develop and support an effective marketing strategy.

ii) Outline two benefits to Olympian Ltd of segmenting the market.

Marketing strategy will focus on the customers who are most likely to buy the Hoodie

Tracksuit

Cost effective use of resources – avoids markets which will not be profitable

May give Olympian Ltd a competitive advantage in the Hoodie Tracksuit market

(C) Describe the factors that the Marketing Manager of Olympian Ltd should consider

when deciding on the selling price of their new range of Hoodie Tracksuits.

The factors which should be taken into account when deciding on the selling price include:

Costs: The price should cover the firm’s costs (production, marketing, distribution etc) and

include a profit margin/Cost plus pricing.

Competitors Prices: Competition is very intense in the sportswear industry and this will

influence the price to be charged/Going rate pricing.

Type of Product: As the firm is selling branded tracksuits the price is likely to be high to

reflect this/ Premium Pricing.

Stage of Product Life Cycle: As the products are new and at the introductory stage a high

price is suitable to help recover costs/Price skimming.

Consumers: The type of buyers will determine the price which can be charged. The target

market has been identified as the teenage market.