PJA make fashion clothing for 16-25 year olds. Many of its competitors are multinational companies. PJA produce new products every 3 weeks. All PJA’s products are made in a local factory because 2 of import quotas. The Managing Director is reviewing PJA’s financial statements using ratio analysis. An extract is shown in Table 2.1. Table 2.1 Extract from PJA’s financial statements for 2020 7400 Revenue ($m) 3330 Gross profit ($m) 1100 Profit ($m) 1.5 Current ratio 8% Return on Capital Employed (ROCE) Define ‘import quota’. (a) … … … [2] Calculate PJA’s gross profit margin. Show your working. (b) … … … [2] Outline one benefit and one limitation to PJA of developing new products. (c) Benefit: … … … … Limitation: … … … … [4] Explain two ways PJA’s managers can use ratio analysis. (d) Way 1: … … Explanation: … … … … Way 2: … … Explanation: … … … … [6] Do you think multinational companies always benefit the countries they operate in? Justify your answer. (e) … … … … … … … … … … … … [6]

2(a) Define ‘import quota’. Award 2 marks for a full definition. Award 1 mark for a partial definition. Limit on the number of goods into a country [2] Partial definition e.g. limit on number of imports [1] 2 2(b) Calculate PJA’s gross profit margin. Show your working. Correct answer 45(%) [2] Correct method but incorrect answer [1] e.g. gross profit / revenue ×100 OR 3330 / 7400 *100 2 0.45 alone = 0 2(c) Outline one benefit and one limitation to PJA of developing new products. Award 1 mark for each relevant benefit/limitation. Award 1 mark for each relevant reference to this business. Points might include: Benefit: • Attract new customers / sales / growth [k] for its clothes [app] • Need to replace products in decline / keep up with changing customer tastes [k] of 16–25-year-olds [app] • Retain customers / to maintain market share [k] • Spread risk / attract new markets / have other products to rely on for sales [k] • Charge a higher price [k] • Improve reputation [k] • Can create a unique selling point [k] Limitations: • No guarantee customers will like the new product [k] as fashion changes [app] • Competitors might introduce rival products / reduce prices [k] as most of competitors are multinational companies [app] • High cost [k] • Production issues, e.g. is there sufficient capacity [k] within factory [app] • Having access to suitable materials [k] as trying to avoid import quotas [app] Other appropriate responses should also be credited. 4 Note: To use words from the stem as application, the reference must be appropriate (i.e. make sense) in relation to the point being made. The following words are likely to be appropriate for this question: • Correct use of data from table 2.1 • Clothes • Fashion • 16–25-year-olds / young customers • Local • Factory • Multinational companies • 3 weeks / 21 days. Other appropriate examples in context can still be credited. 2(d) Explain two ways PJA’s managers can use ratio analysis. Award 1 mark for identification of each relevant way (max 2). Award 1 mark for each relevant reference made to this business (max 2). Award 1 mark for each relevant explanation (max 2). Points might include: • Able to see trends over time [k] for its clothing [app] to see where / whether performance has improved or not [an] • See trends between competitors [k] such as whether revenue is higher than $7400m [app] to assess how / whether they are as competitive as they think [an] • Able to measure financial performance / profitability / success [k] as if last year ROCE was lower than 8% [app] profitability has improved [an] • Help make investment/expansion decisions [k] such as developing new products [app] • Check / manage liquidity OR working capital [k] as if last year the current ratio was higher than 1.5 [app] then they know liquidity has got worse [an] Other appropriate responses should also be credited. 6 Note: To use words from the stem as application, the reference must be appropriate (i.e. make sense) in relation to the point being made. The following words are likely to be appropriate for this question: • Correct use of data from table 2.1 • Clothes • Fashion • 16-25-year-olds / young customers • Local or factory • Multinational companies • Develop new products. Other appropriate examples in context can be credited. 2(e) Do you think multinational companies always benefit the countries they operate in? Justify your answer. Award up to 2 marks for identification of relevant issues. Award up to 2 marks for relevant development of points. Award up to 2 marks for justified decision as to whether multinational companies always benefit the countries, they operate in. Points might include: • Creates jobs / provides income [k] so improving living standards [an] • Technical knowhow increased [k] which could help improve production methods / efficiency / output [an] • Orders for local suppliers [k] increasing local incomes / GDP [an] • Improve international reputation of country [k] • Increased investment / infrastructure development in country [k] • Companies pay taxes [k] which increases government income [an] • Competition for local businesses [k] leading to lower demand / lower prices [an] which could lead to the closure of local businesses [an] • Profits are often repatriated [k] limiting the countries growth [an] • Offer higher wages [k] reducing supply of workers for local business [an] • Use up limited resources [k] so there is less available for other local businesses [an] • Jobs created may be unskilled [k] Other appropriate responses should also be credited. Justification might include: Companies pay taxes [k] which increases government income [an]. However, reduced sales for local businesses [k] may lead to lower revenue [an]. A multinational always benefits a country to some extent, because of the money invested. [eval] The overall impact depends upon the effect on local businesses. [eval] 6 This is a general question so there are no marks for application. Analysis should focus on the impact on the country.

NSN is a multinational company. It makes cars. Over the years, technology has changed production methods. NSN uses just-in-time inventory control in all its factories. NSN plans to open a new 2 factory in country Z creating 7000 jobs. Country Z’s Government has offered an $80m grant to NSN. A spokesperson for NSN said: ‘Governments should support business activity. There were also other factors that influenced our decision to build the new factory there including the possible effects of economic growth.’ Define ‘multinational company’. (a) … … … … [2] Identify two reasons why a government might support business activity. (b) Reason 1: … … Reason 2: … … [2] Outline one advantage and one disadvantage to NSN of using just-in-time inventory control. (c) Advantage: … … … … Disadvantage: … … … … [4] Explain two ways in which an increase in economic growth might affect NSN’s decision to build a new factory in country Z. (d) Way 1: … … Explanation: … … … … Way 2: … … Explanation: … … … … [6] Do you think the ways technology has changed production methods benefits all employees? Justify your answer. (e) … … … … … … … … … … … … [6]

2(a) Define ‘multinational company’. Award 2 marks for a full definition. Award 1 mark for a partial definition. A business with factories, production, or service operations in more than one country [2] OR A business with production or service operation in another country outside its normal area of operation [2] Partial definition e.g. has businesses everywhere [1] OR works/operates in more than one country [1] 2 Do not award ‘sells in other countries’ as this could equally apply to an exporter. 2(b) Identify two reasons why a government might support business activity. Award 1 mark per reason. Points might include: • Create jobs • Increase competition / develop a market • Increase output / economic growth/GDP • Benefit society (small) businesses can grow into large/ important ones in the future • Generate new ideas • Can produce (a future source of) tax revenue Other appropriate responses should also be credited. 2 Only award the first two responses given. 2(c) Outline one advantage and one disadvantage to NSN of using just- in-time inventory control. Award 1 mark for each relevant advantage/disadvantage. Award 1 mark for each relevant reference to this business. Points might include: Advantages: • Less warehouse space [k] needed to store parts for cars [app] • Less inventory held [k] in its factories [app] • Lower storage costs [k] for the multinational company [App] • Improve working capital [k] • Improve cash flow [k] • Lower risk of obsolete/damaged stock [k] Disadvantages: • Very reliant on suppliers to deliver stock when needed / if parts not available / late it will have a major impact on production [k] as technology has changed how production is carried out [app] • May not be able to meet sudden/unexpected order [k] • Little room for mistakes (as minimal stock available for rework) [k] • Less (purchasing) economies of scale [k] Other appropriate responses should also be credited. 4 Note: To use words from the stem as application, the reference must be appropriate (i.e. make sense) in relation to the point being made. The following words are likely to be appropriate for this question: • Car • Factory • Multinational company • Technology changed production Other appropriate examples in context can still be credited. 2(d) Explain two ways in which an increase in economic growth might affect NSN’s decision to build a new factory in country Z. Award 1 mark for identification of each relevant way (max 2). Award 1 mark for each relevant reference to this business (max 2). Award 1 mark for each relevant explanation (max 2). Points might include: • Could lead to increased demand [k] for cars [app] increasing revenue [an] • Shortage of skilled workers [k] may make it more difficult to recruit workers [an] for the 7000 jobs[app] • Employees may ask for higher wages [k] increasing costs [an] • Increased rent costs / less choice of location [k] increasing fixed costs [an] for the factory[app] • Increased competition [k] so may gain few customers / low market share [an] Other appropriate responses should also be credited. 6 Note: To use words from the stem as application, the reference must be appropriate (i.e. make sense) in relation to the point being made. The following words are likely to be appropriate for this question: • Car • $80m (grant) • 7000 jobs • Just-in-time inventory control • Multinational company Other appropriate examples in context can still be credited. 2(e) Do you think the ways technology has changed production methods benefits all employees? Justify your answer. Award up to 2 marks for identification of relevant points. Award up to 2 marks for relevant development of points. Award 2 marks for a justified decision as to whether the way technology has changed production methods has benefited all employees. Points might include: • Need for retraining / learn new skills [k] leading to opportunities for promotion [an] • Safer conditions [k] so less risk of injury [an] • The job is more repetitive [k] so lower job satisfaction [an] • Fewer workers needed / workers may lose their jobs / redundancy [k] so lower standard of living [an] • More job insecurity / fear of change [k] so could reduce motivation [an] • More skilled workers may be needed [k] leading to higher pay [an] Other appropriate responses should also be credited. Justification might include: • Less job security [k] could reduce workers motivation [an]. However, more skilled workers may be needed [k] leading to higher pay. [an] No, it will not benefit all employees as it depends on the individual worker. Those who lose their jobs will not see the benefit from technology [eval] whereas those who keep their job can benefit from learning new skills. [eval] 6 This is a general question so there are no marks for application. Note: Answer must focus on the benefit or not to the workers so do not accept points such as ‘more efficient’ or ‘better quality/ less mistakes’ unless clearly link issue to employees. Do not award work is easier/less work as this is too vague.

SBG makes a range of products including specialist paints. It has 6 factories and 700 employees. All SBG’s employees are encouraged to be involved in decision-making. SBG’s products are 3 exported to 16 countries using wholesalers as its main channel of distribution. The Managing Director said: ‘Our objectives are to grow and make a profit.’ He also recognises that all business activity creates externalities for SBG’s stakeholder groups. Define ‘externalities’. (a) … … … … [2] Define ‘stakeholder groups’. (b) … … … … [2] Outline two reasons why profit might be important to SBG. (c) Reason 1: … … … … Reason 2: … … … … [4] Explain two ways SBG can involve its employees in decision-making. (d) Way 1: … … Explanation: … … … … Way 2: … … Explanation: … … … … [6] Do you think using wholesalers is the best way for a large business to distribute its products? Justify your answer. (e) … … … … … … … … … … … … [6]

3(a) Define ‘externalities’. Award 2 marks for a full definition. Award 1 mark for a partial definition. Third party effects arising from production or consumption of goods and services for which no appropriate compensation is paid [2] OR Advantages or disadvantages that fall on third parties that are not directly involved in the production process [2] OR The effect of business activities on unrelated parties [2] Partial definition e.g. effect on third party or society [1] 2 3(b) Define ‘stakeholder groups’. Award 2 marks for a full definition. Award 1 mark for a partial definition. Any person or group with a (direct) interest in the performance/activities of a business [2] Partial definition e.g. An individual or group which has an interest in a business [1] OR Someone affected by what a business does [1] OR Anybody inside or outside the business who cares about its operations [1] 2 3(c) Outline two reasons why profit might be important to SBG. Award 1 mark for each relevant reason. Award 1 mark for each relevant reference to this business. Points might include: • Source of finance [k] as its objective is to grow [app] • To ensure survival of the business / avoid closure [K] protecting jobs of its 700 employees [app] • Measure/indicator of success of the business [k] in each of the 16 countries [app] • Measures the performance of managers [k] in the paint business [app] • Reward for risk-taking [k] • Decide whether to continue making or selling a product [k] • Attract investors [k] Other appropriate responses should also be credited. 4 Note: To use words from the stem as application, the reference must be appropriate (i.e. make sense) in relation to the point being made. The following words are likely to be appropriate for this question: • Paint • 6 factories • 700 employees • 16 countries • Growth (is the objective) • Employees are encouraged to be involved in decision-making. Other appropriate examples in context can still be credited. Do not credit payment of day-to-day expenses. 3(d) Explain two ways SBG can involve its employees in decision- making. Award 1 mark for identification of each relevant way (max 2). Award 1 mark for each relevant reference to this business (max 2). Award 1 mark for each relevant explanation (max 2). Points might include: • Delegation [k] as workers in the 6 factories [app] will make the decisions themselves [an] • Democratic leadership [k] encourages employees to offer ideas [an] about developing new products [app] • Encourage team working / kaizen [k] for its 700 employees [app] • Meet with employees/surveys [k] Other appropriate responses should also be credited. 6 Note: To use words from the stem as application, the reference must be appropriate (i.e. make sense) in relation to the point being made. The following words are likely to be appropriate for this question: • Paint • 6 factories • 16 countries • 700 employees • Developing new products • Channel of distribution Other appropriate examples in context can still be credited. 3(e) Do you think using wholesalers is the best way for a large business to distribute its products? Justify your answer. Award up to 2 marks for identification of relevant points. Award up to 2 marks for relevant development of points. Award 2 marks for a justified decision as to whether wholesalers are the best channel of distribution for a large business to use. Points might include: • Transport costs to the retailer is paid for by the wholesaler [k] so reduces costs to manufacturer [an] • Can help sell goods to a larger market [k] leading to higher revenue [an] • Wholesalers buy in large quantities [k] reducing distribution costs [an] • Wholesalers will advertise and promote products [k] • Another middleman will take some of the profit [k] • Producer loses some control over the marketing [k] Other options could include: • Selling direct to customers [k] ensures more control over the marketing mix [an] • Using a retailer [k] Justification might include: • Wholesalers will pay slightly lower prices [k] which will reduce the businesses profit margin. [an] By selling direct to customers [k] this will give the firm more control over marketing. [an] Selling directly to customers maybe the best way to protect its brand image. [eval] For a large business image is likely to have a big impact on in their sales. [eval] 6 This is a general question so there are no marks for application. To gain both evaluation marks, response must clearly relate to a large business. Candidates can discuss other options, but evaluation must focus on whether wholesalers are the best way for a large business to distribute its products.

Aurelie is a sole trader. She started her small hotel 1 year ago using government support. Aurelie knew it would be important to build good customer relationships. Aurelie wants to analyse her 3 financial statements using ratio analysis. An extract is shown in Table 3.1. She is worried about how the Government’s plan to introduce a new tourist tax of $1 per tourist per night might affect her business. Table 3.1 Extract of Aurelie’s Income statement for 2020 ($) 5600 Revenue 1800 Cost of sales X Gross profit 2400 Expenses Y Profit Identify two ways a government can support new business start-ups. (a) Way 1: … … Way 2: … … [2] Calculate X and Y. (b) X: … Y:… [2] State four financial ratios a business can use. (c) Financial ratio 1: … … Financial ratio 2: … … Financial ratio 3: … … Financial ratio 4: … … [4] Explain two ways that the introduction of a new tourist tax might affect Aurelie’s business. (d) Way 1: … … Explanation: … … … … Way 2: … … Explanation: … … … … [6] Do you think offering good customer service is the best way for a small business to build customer relationships? Justify your answer. (e) … … … … … … … … … … … … [6]

3(a) Identify two ways a government can support new business start- ups. Award 1 mark per way. Points might include: • Offer grants • Loans for small businesses • Low tax rates / tax relief / tax breaks • Offer advice / support / information / mentors • Provide (free / low-cost) training • Low cost / rent-free premises • Organise business fairs Other appropriate responses should also be credited. 2 Only award the first two responses given. 3(b) Calculate X and Y. Award 1 mark for each correct calculation. X $3800 or 3800 Y $1400 or 1400 2 No $ sign required. 3(c) State four financial ratios a business can use. Award 1 mark per financial ratio. Four from: • Profit margin • Gross profit margin • Return on capital employed / ROCE • Current (ratio) • Acid test (ratio) Other appropriate responses should also be credited. 4 Only award the first four answers given. 3(d) Explain two ways that the introduction of a new tourist tax might affect Aurelie’s business. Award 1 mark for identification of each relevant way (max 2). Award 1 mark for each relevant reference made to this business (max 2). Award 1 mark for each relevant explanation (max 2). Points might include: • Increase price [k] at her hotel [app] leading to lower demand [an] • Lower demand/sales [k] leading to less revenue [an] than $5600 [app] • Increase administration costs [k] for this sole trader [app] reduce her profit margin [an] • May have to lower prices [k] Other appropriate responses should also be credited. 6 Note: To use words from the stem as application, the reference must be appropriate (i.e. make sense) in relation to the point being made. The following words may be appropriate for this question: • (Small) hotel or related words such as room • $1 / (price) per night • Sole trader • $5600 (revenue) • $2400 (expenses) Other appropriate examples in context can still be credited. 3(e) Do you think offering good customer service is the best way for a small business to build customer relationships? Justify your answer. Award up to 2 marks for identification of relevant points. Award up to 2 marks for relevant development of points. Award 2 marks for a justified decision as to whether offering good customer service is the best way for a small business to build customer relationships. Points might include: Offer good customer service: • Makes customers feel valued / builds trust [k] so improves customer loyalty [an] which can help maintain / increase revenue [an] • Can help build reputation / brand image [k] • May need to train/recruit employees [k] which increases costs [an] Other options include: • Loyalty (reward) scheme [k] which can encourage customers to keep returning [an] but there is time / cost of setting up / monitoring scheme [an] • Market research [k] • Maintain good communications [k] • Respond to complaints / offer refunds quickly [k] Other appropriate responses should also be credited. 6 This is a general question so there are no marks for application. 3(e) Justification might include: Good customer service can make customers feel valued [k] so customers may be willing to buy additional products [an]. However, it may mean the business has to train its employees [k] which increases costs [an]. But I think it is still the best way as it can also help attract additional customers to the business increasing revenue [eval] which can offset / cover the additional cost of training. [eval]. (a) To earn marks, identify two distinct ways a government can support new business start-ups, such as offering grants, loans, low tax rates, advice, training, or low-cost premises. (b) To earn marks, correctly calculate X by subtracting Cost of Sales from Revenue, and Y by subtracting Expenses from Gross Profit. (c) To earn marks, state four distinct financial ratios a business can use, such as profit margin, gross profit margin, return on capital employed, current ratio, or acid test ratio.

Economic growth in country X has created many opportunities for new businesses such as TGH. TGH manufacture a range of personalised mobile (cell) phone cases using job production. Quality 4 assurance is important to all 8 employees. TGH operate in a niche market. The Marketing Manager uses e-commerce as TGH’s channel of distribution. She is considering ways to build customer relationships. Define ‘economic growth’. (a) … … … … [2] Define ‘quality assurance’. (b) … … … … [2] Outline two reasons why building customer relationships might be important to TGH. (c) Reason 1: … … … … Reason 2: … … … … [4] Explain one advantage and one disadvantage to TGH of using job production. (d) Advantage: … … Explanation: … … … … Disadvantage: … … Explanation: … … … … [6] Do you think cost-plus is the best pricing method for a new business to use when selling products to a niche market? Justify your answer. (e) … … … … … … … … … … … … [6]

4(a) Define ‘economic growth’. Award 2 marks for a full definition. Award 1 mark for a partial definition. When a country’s GDP increases / more goods and services are produced than in the previous year [2] Partial definition e.g. increases in a country’s spending/income/output [1] OR Increase in GDP [1] 2 For 2 marks the answer must relate to a country not individual business. High GDP [0] 4(b) Define ‘quality assurance’. Award 2 marks for a full definition. Award 1 mark for a partial definition. Checking for quality standards throughout production process / at every stage [2] Partial definition e.g. checking work done [1] 2 Do not credit answers such as check at end or check final product as this defines quality control. Do not credit explanations of why it is done e.g. manufacturer wants product to be perfect. 4(c) Outline two reasons why building customer relationships might be important to TGH. Award 1 mark for each relevant reason. Award 1 mark for each relevant reference to this business. Points might include: • Increase sales [k] of phone cases [app] • Customer loyalty/retention [k] when using e-commerce [app] • Help build reputation / brand image / act as free advertising [k] for this new business [app] • Opportunity for feedback / help identify customer needs [k] as operate in a niche market [app] • Provide a competitive advantage [k] as other businesses may also set up because of economic growth [app] Other appropriate responses should also be credited. 4 Note: To use words from the stem as application, the reference must be appropriate (i.e. make sense) in relation to the point being made. The following words are likely to be appropriate for this question: • Personalised • (Mobile/phone) cases • New business/start-up • Economic growth • Niche market • E-commerce • 8 employees Other appropriate examples in context can still be credited. Do not award phones as application as business does not make them only the covers. 4(d) Explain one advantage and one disadvantage to TGH of using job production. Award 1 mark for identification of each relevant advantage/disadvantage (max 2). Award 1 mark for each relevant reference made to this business (max 2). Award 1 mark for each relevant explanation (max 2). Points might include: Advantages: • Unique / meet exact customer needs [k] for its phone cases [app] can help brand loyalty [an] • Workers likely to make fewer mistakes [k] which helps ensure quality assurance [app] so less need for rework [an] • More varied work (leads to higher motivation) [k] helping retention / lower absenteeism [an] in this new business [app] • Can charge a higher price [k] in a niche market [app] • High quality products [k] which are personalised [app] • Flexible [k] Disadvantages: • Skilled labour can cost more [k] for the 8 employees [app] which increases labour costs [an] • No economies of scale (likely) [k] leading to higher average cost [an] • Production can take a long time [k] causing lower output / efficiency / productivity [an] • Costs are higher as it is labour intensive [k] • Mistakes can be expensive to correct [k] Other appropriate responses should also be credited. 6 Note: To use words from the stem as application, the reference must be appropriate (i.e. make sense) in relation to the point being made. The following words are likely to be appropriate for this question: • Personalised • (Mobile/phone) cases • E-commerce • New business • Niche market • 8 employees • Quality assurance Other appropriate examples in context can still be credited. Do not award phones as application as business does not them only the covers. 4(e) Do you think cost-plus is the best pricing method for a new business to use when selling products to a niche market? Justify your answer. Award up to 2 marks for identification of relevant points. Award up to 2 marks for relevant development of points. Award 2 marks for justified decision as to whether cost-plus pricing is the best pricing method for a new business to use when selling products in a niche market. Points might include: Cost-plus • Know cost can be covered [k] and can make a profit per item [an] • Simple and easy to calculate [k] so saves time when setting prices [an] • Prices may be higher than competitors [k] leading to a fewer sales [an] • Little incentive to control costs [k] Other pricing methods might include: • Penetration pricing [k] as setting a lower price than competitors should attract customers [an] • Competitive pricing [k] but the business will have limited or no control over the price [an] so may not be able to recover its costs [an] • Price skimming [k] customers may expect / be willing to pay more in a niche market [an] • Promotional pricing [k] Other appropriate responses should also be credited. Justification might include: Cost plus pricing is simple and easy to calculate [k] so saves time when setting prices [an]. Although penetration pricing [k] setting a lower price than competitors should attract customers [an]. Cost plus pricing is the best pricing method as covering costs is important for a new business [eval]. Although the price maybe slightly higher this is less important in a niche market where there are likely to be fewer alternatives [eval]. 6 This is a general question so there are no marks for application. To gain both evaluation marks response must clearly relate to a new business operating in a niche market.

Cambridge O Level Business Studies · 7115

O-Level Business Studies (7115) External influences on business activity past paper questions

External-influence questions test economic issues, environmental and ethical pressures, and the international economy, building the evaluation the top marks depend on.

45 free questions from 2017–2021, each with its marking scheme. Open the full topical bank to filter by subtopic, paper, and year.

External influences on business activity in O-Level Business Studies 7115 exams, 2020–2025

Across 2020–2025, External influences on business activity accounted for 56 questions worth 1,120 marks in Cambridge O Level Business Studies (7115) papers.