Business Objectives (Cambridge (CIE) A Level Business): Exam Questions

Electric Cars (EC)

EC is a public limited company producing electric cars. Market research suggests that electric cars are in the early stage of the product life cycle. The demand for electric cars is likely to increase substantially in the next 10 years. EC is based in country X, where it is one of three electric car manufacturers. However, other manufacturers could start to produce electric cars if the forecast market growth is correct.

EC’s promotion has only been aimed at high income groups. The government of country X recently announced that it will support the use of electric cars. This will help EC to achieve its objective to increase sales volume by 50% over the next two years.

One year ago, EC invested $10m in new production facilities. The investment was funded by a long-term bank loan. Interest payments on the bank loan have reduced EC’s profit margin from 9% to 4%. EC will need to cut unit costs through increased efficiency.

EC initially launched its cars using a price skimming strategy but sales growth has been slow. If EC can achieve a 50% growth in sales over the next two years, it will be in a strong financial position. This means it will be able to spend more on the development of a larger product portfolio of electric cars.

Jancie, the Finance Director, has produced forecasts for EC’s financial data over the next two years, as shown in Table 2.1.

Table 2.1: Extract from EC’s forecast financial data

Super Candy (SC)

SC is a large public limited company that sells low-sugar candy (sweets) with natural flavourings. The candy is made using flow production in SC’s four large factories in country T.

SC uses psychographic market segmentation when planning its marketing mix.

SC has completed some secondary market research using published accounts. The data is about one of SC’s main competitors, Organic Kandy (OK) and compares the results with data about SC (see Table 2.1). OK is in the same market as SC.

Table 2.1: Secondary market research about OK and SC for 2020

There have been a number of media reports in country T about the increasing importance of corporate social responsibility (CSR). A large food manufacturing business in country T recently lost many customers due to reports about its use of plastic packaging.

The directors of SC are particularly concerned about this trend because of SC’s use of plastic in its packaging. The marketing department has been told to conduct some primary market research on this issue. The directors are planning to discuss making CSR a new business objective for SC.

Devonice Ltd (DL)

Gabriel Romana founded DL in 2012 in country Y. He used his savings to develop Devonice, a luxury ice cream brand made from natural ingredients. DL started manufacturing ice cream in a small factory in 2013.

Organisation and growth

DL has grown rapidly. Gabriel has increased the product range with new flavours of ice cream. In 2016, DL opened its second factory and its first Devonice ice cream shop in country Y. At present, most sales are made to supermarkets in country Y. However, Gabriel has plans to open more ice cream shops. He is also considering selling DL franchise agreements to increase export sales. Gabriel enjoys being in control of the business and intends to maintain a centralised structure. Managers of the functional departments report directly to Gabriel and he makes all major decisions.

The production line project

DL has two factories, operating 24 hours a day. In total, there are 5 production lines and 200 workers able to produce 30 million litres of ice cream per year. Capacity utilisation is currently 90%. To increase capacity and flexibility, Gabriel is considering investing in computerised production lines. Gabriel wants this project completed within 20 weeks in time for the summer season.

The operations manager has prepared a critical path analysis (CPA) for the project (see Appendix 1 and Appendix 2).

The operations manager is worried about the project. He told Gabriel: ‘This new system is complex and untried. I am also worried about delays and the impact on our workers.’ Estimated net cash flows of the project are shown in Table 1.

A competitive market

Devonice is now the market-leading brand in country Y and is exported to 10 other countries. DL’s innovative marketing and high quality product have contributed to sales growth. DL targets young adults and has developed a premium brand image. Promotion includes the use of social media, school sponsorship and celebrity endorsement. DL also donates a share of its profits to environmental charities.

Market conditions in country Y are challenging. A multi-million dollar advertising campaign by a global ice cream brand has increased competition. DL sales have remained stable but market share has fallen. In response, Gabriel is considering reducing the price of Devonice or increasing promotional spending. The marketing department has estimated the promotional elasticity of demand and price elasticity of demand for Devonice. Details are in Table 2.

The marketing manager recommends reducing price to widen the market appeal of the brand and open up new distribution opportunities. However, Gabriel believes this could damage the brand image. In his opinion, increasing promotional spending is the better decision.

Corporate social responsibility (CSR)

Despite rising incomes in country Y, there is concern about health related problems due to poor diet. In 2020, a pressure group started a campaign to persuade food manufacturers to take greater responsibility for the impact of their products. The group demanded government action to reduce sales of food products high in sugar and fat by:

• regulating product labelling

• restricting advertising

• introducing a tax on these products

DL could change ingredients to reduce sugar content. However, Gabriel is worried about consumer reaction. DL is also facing pressure to stop using palm oil because of the loss of rainforest associated with its production. Palm oil helps make ice cream smooth and creamy. There are alternatives DL could use, but these are more expensive.

Appendix 1: Critical path analysis (CPA) for the production line project

Appendix 2: Network diagram for the production line project

Charlie’s Chocolates (CC)

CC is a large public limited company that manufactures a wide range of chocolate bars. Production takes place in low wage countries so that costs can be kept low. CC has suffered recently from poor publicity due to the high levels of sugar used in the production of its chocolate. A national newspaper has recently published an article about how CC exploits employees in low wage countries. The Marketing Director, Alan, is aware of recent trends showing that consumers are becoming more ethical in their buying decisions. He thinks this might explain why sales decreased by 10% last year.

He has asked to meet with the Managing Director, Ikram, to discuss a major change towards more ethical production methods. This could mean re-locating production back to the home country. This will increase costs and involve the recruitment of additional employees. In response to recent Government guidelines to improve health, Alan wants to decrease the amount of sugar used in the chocolate bars.

Alan is also thinking about the financial accounts for this year that he received this morning from Ikram (see Table 1 and Table 2).

Table 1 – Extract from Income Statement

Table 2 – Extract from Statement of Financial Position

With sales declining from last year, Alan has to think carefully about the next steps for marketing. He knows that the product range is of good quality – the problem is the poor image of the company. For example, he is aware that a local consumer group is trying to organise a demonstration outside one of CC’s factories in the next few weeks.

MERIDIAN TECHNOLOGIES (MT)

Background

Meridian Technologies (MT) is a private limited company based in country K. It designs and manufactures smart home devices, including wireless speakers, smart thermostats, and home security systems. 

MT was founded 12 years ago by entrepreneur Hana Park and has grown to employ 850 workers across two manufacturing facilities in country K.

MT sells its products domestically and exports to several countries in Asia and Europe. Competition in the smart home device market is intense. MT faces growing pressure from several large multinational companies (MNCs) that compete aggressively on price and brand recognition.

Organisational Change

Until two years ago, MT operated with a flat organisational structure in which considerable authority was delegated to regional managers. Following a period of rapid growth, Hana decided to restructure the business, reducing the number of management levels and centralising all major decision-making at head office.

The restructuring has not been universally welcomed. A recent internal employee survey found that 64% of workers felt less motivated since the change was introduced. Three experienced regional managers left the business within six months of the restructuring being implemented.

Expansion Plans

MT is planning to expand its production capacity and is evaluating two investment projects. Table 1 shows data for Project A. Table 2 shows the projected annual net cash flows for Project B.

Table 1: Project A — Automated Production Line

Table 2: Project B — Expansion of Existing Facility

Export Markets and Exchange Rates

MT currently generates 40% of its revenue from exports. Approximately 60% of MT's export revenue is earned in euros (€). In the past 12 months, country K's currency has strengthened significantly against the euro, rising in value by 15%.

Table 3 shows MT's revenue by market for the year ended December 2023.

Table 3: MT Revenue by Market (year ended December 2023)

Pricing Strategy

MT's Finance Director has suggested reducing the selling price of the smart thermostat in order to increase market share and compete more effectively against MNC rivals. Table 4 shows the relevant pricing and demand data.

Table 4: Smart Thermostat — Pricing and Demand Data

Corporate Social Responsibility

MT sources many of its components from suppliers based in country L, where labour costs are significantly lower than in country K. A pressure group called EthicsWatch has recently published a report claiming that some of MT's suppliers in country L use poor working conditions and pay employees below the minimum wage. The report has received widespread media coverage in country K and has been shared extensively on social media.

Hana is considering whether to introduce a formal corporate social responsibility (CSR) strategy. This would include auditing all of MT's suppliers in country L and switching to certified ethical suppliers where necessary. MT's operations director estimates that this would increase raw material costs by approximately 12%.