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

Reed (RD)

Reed (RD) manufactures woodwind and brass instruments in country J. Founded forty years ago, it employs 260 people and sells mainly to schools and to specialist music shops.

School music programmes in country J have been cut as education budgets have tightened, and RD's revenue has fallen steadily as a result.

Table 1.1: RD selected data

RD's board has proposed diversifying into the manufacture of high-end audio speakers, a market RD has never entered. The $9m needed would be raised by borrowing.

RD's sales team has always sold to schools and music shops. It has no experience of selling consumer electronics.

Silver Birch (SB)

Silver Birch (SB) manufactures wooden children's toys in country E. It employs 130 people and sells through toy shops and department stores across country E only.

SB's toys are made from sustainably sourced timber and are known for lasting well enough to be passed from one child to the next.

The toy market in country E is mature, and SB's factory has spare room to produce more.

Table 1.1: SB selected data

Two neighbouring countries have growing populations of young children and rising household incomes. Retailers in both contacted SB after seeing its products at a trade fair.

SB's directors are considering selling to these two countries using its existing range of toys.

Open Road (OR)

Open Road (OR) hires cars to leisure and business customers in country T. It operates 22 branches, mostly at airports and railway stations, and owns a fleet of 1,900 vehicles.

The car hire market in country T is not growing. OR competes with four other national firms offering similar cars at similar prices.

Table 1.1: OR selected data

OR's marketing director has proposed a membership scheme giving repeat customers faster collection and a discount on their fourth hire of the year. She has also proposed advertising aimed at customers of rival firms.

Iron Oak (IO)

Iron Oak (IO) manufactures gym equipment for commercial fitness centres in country P. It makes treadmills, rowing machines and weight racks, and employs 310 people.

IO supplies around 700 fitness centres, many of which have bought from it for over a decade and trust its equipment to withstand heavy daily use.

Several of these customers have asked IO whether it plans to produce equipment that records each user's performance and sends it to a phone app. Two overseas manufacturers already sell such machines in country P.

IO employs no software engineers.

Table 1.1: IO selected data

Paper Lane (PL)

Paper Lane (PL) owns 48 shops in country D selling greetings cards, gift wrap, notebooks and pens. It employs 520 people.

Sales of greetings cards across country D have fallen for six years as more people send messages online. PL's notebook and pen sales have held steady.

PL's board has discussed four possible ways of growing, but has never used a formal framework to compare them:

• opening shops in a neighbouring country

• selling personalised cards printed in store

• persuading existing customers to visit more often

• buying a chain of craft supply shops

Table 1.1: PL selected data

Solaris Energy Solutions (SES)

SES was founded in 2009 in country T by engineer and entrepreneur Marco Santos. Using $200,000 of personal savings and a $300,000 bank loan, Marco set up the business designing and installing solar panels for residential customers. The bank loan was fully repaid by 2013.

Timeline of SES's strategy for growth

Developing a new strategic direction

The domestic solar panel market in country T is becoming increasingly competitive. Several large multinational companies (MNCs) have entered the market in recent years, competing aggressively on price. Marco believes SES must change direction to secure its long-term future.

Two strategic options are being considered:

• Option A: Expand internationally into country U, where government incentives have created rapid growth in solar energy demand.

• Option B: Diversify within country T into electric vehicle (EV) charging infrastructure — a market that is growing rapidly as EV adoption increases.

SES's Finance Director has warned that the company's financial position has weakened and that any new strategy must be carefully costed and phased. Marco would like advice on which strategic direction SES should pursue.

Appendix 1: The renewable energy market in country T (2016)

• The government of country T has committed to generating 50% of its electricity from renewable sources by 2030.

• Solar energy is the fastest-growing renewable energy source in country T, with installations rising by 22% per year.

• Growing public awareness of climate change is driving strong demand from residential and commercial customers.

• Government subsidies for residential solar installations are generous but are scheduled to be reduced from 2021.

• Competition for government contracts is intense; however, profit margins on public sector contracts are higher than on private sector work.

• MNCs from Europe and Asia are beginning to establish operations in country T, benefiting from economies of scale and established brand recognition.

Appendix 2: HR Director's report following SES's acquisition of EcoGrid (2018)

EcoGrid was a family-run business of 45 employees. It had a flat organisational structure, a culture of autonomy and flexible working, and a strong reputation for technical innovation in energy storage systems.

SES operates with a more hierarchical management structure. Following the acquisition, SES standardised HR practices across both companies. EcoGrid employees were moved from flexible contracts to fixed-hours annualised contracts. A third of EcoGrid's specialist engineers chose to leave within twelve months.

Recruiting qualified energy storage engineers in country T is difficult. Training new engineers to the required standard takes an average of 18 months. Productivity in the EcoGrid division has fallen significantly since the acquisition. Several planned product development projects have been delayed.

Appendix 3: SES AI energy management software (2020)

• Software is integrated into all new SES solar systems and is compatible with EcoGrid storage units.

• Optimises energy use in real time, reducing customer energy bills by an estimated 15–20%.

• Revenue model: customers pay an annual subscription fee of $120 per year.

• 12,000 customers are currently subscribed to the platform; subscription revenue is growing at 8% per year.

• Development cost: $2.5m, funded entirely from SES's retained profit.

• The platform is widely regarded within the industry as technically advanced, but requires ongoing investment to maintain and update.

Appendix 4: Analysis of SES's financial accounts between 2018 and 2022