Stakeholders in a Business (Cambridge (CIE) A Level Business): Exam Questions

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.

Farm Produce (FP)

FP is a primary sector co-operative made up of six farms in country G. Each farm grows a range of fruit and vegetables. FP employs 26 workers across the farms and distribution centre. Each farm transports its fruit and vegetables to the distribution centre where they are packaged and sent to customers’ homes. Table 1.1 contains data about the farming industry in country G.

Table 1.1: Data about the farming industry in country G

FP’s customers pay for a box of seasonal fruit and vegetables that is delivered each week. Data about the different box sizes sold by FP is shown in Table 1.2.

Table 1.2: FP’s cost and price data

FP is concerned about the profitability of the small box size. It believes it should stop selling this product.

Crest (CR)

Crest (CR) owns a theme park in country B. It is a public limited company employing 480 permanent staff and around 900 seasonal workers during the summer.

CR's directors have announced a plan to build a large new rollercoaster costing $32m, funded partly by borrowing and partly by reducing this year's dividend.

Table 1.1: CR selected data

To help pay for the project, CR also plans to freeze the wages of its permanent staff for two years.

Residents living beside the park have objected to the plan, saying the rollercoaster will be visible from their homes and will increase noise at weekends.

CR's marketing director wants to raise ticket prices by 12% once the ride opens.

Stride (SD)

Stride (SD) manufactures sports shoes in country U. It is a public limited company employing 2,100 people at two factories, and sells to retailers in twelve countries.

Until last year SD's main objective was to increase sales volume as quickly as possible. Its new objective is to make every shoe from recycled or sustainably sourced materials by 2030.

To achieve this, SD will stop buying from eleven of its nineteen current suppliers, which cannot meet the new standards. It will also invest $45m in new machinery, funded by holding this year's dividend at last year's level rather than increasing it.

Recycled materials currently cost SD about 18% more than the materials they replace. SD's directors expect to raise prices by 9% to cover part of this.

Table 1.1: SD selected data

Tin Mines (TM)

TM is a private limited company in the primary sector. Tin is found underground and is extracted by mining. TM operates seven mines in country C. There are several job roles at each mine including skilled engineers, managers and miners.

TM has recently discovered a new source of tin in a remote area of country C. TM has permission to develop a tin mine but will have to construct transport links. It will need new buildings such as offices, warehouses and employee housing. The Human Resources Director is developing a workforce plan to recruit miners and managers for the new mine.

TM’s Financial Director has produced a cash flow forecast for the new mine for the next five years. This is shown in Table 2.1.

Table 2.1: Cash flow forecast for the new mine ($m)

The remote area of country C where the new tin mine will be located has a high level of unemployment and average incomes are low. TM intends to recruit employees from the local area and buy resources from local suppliers, if they are available. The market for tin is likely to be affected by increased demand for electric vehicles. The batteries in electric vehicles contain tin. The government of country C believes that the tin mine will be of great benefit to both the local community and national economy. However, tin mining can result in pollution of local water supplies.

Energy Solutions (ES)

ES is a public limited company in country X. The business was set up in 1980. For 25 years most of ES’s revenue came from coal mining. Although ES still owns many coal mines, the business now specialises in hydraulic fracturing, known as fracking. This is a process used to extract gas from underneath the ground.

The government of country X encourages firms like ES to grow. The growth of ES has led to economies of scale and lower unit costs.

ES considers the effects of fracking on all the stakeholders of the business. Fig. 1.1 is an extract from a recent newspaper article about fracking.

Fig. 1.1: Extract from a recent newspaper article about fracking

Fracking is not liked by everyone. On the positive side it could produce enough gas to mean that country X can produce its own energy for the next 100 years. This is also likely to mean lower energy prices for both businesses and consumers.

Competing companies in the market have taken full advantage of fracking and are expecting to increase their revenue and profit substantially in the future.

However, people who live near the fracking sites have reported many minor earthquakes. These have not damaged any buildings but the price of houses in those areas has decreased significantly.

There has also been a concern that fracking could lead to pollution and a loss of wildlife.

Despite the complaints from some external stakeholders, ES plans to increase the number of fracking sites in country X. This will require ES to buy licences from the government of country X. Each licence costs $50m and ES will require both internal and external sources of finance to fund this purchase.

ES employs over 1000 people. Every worker benefits from a profit-sharing scheme (see Table 1.1) as well as their basic pay.

Table 1.1: Profit-sharing scheme at ES

Ember (EM)

Ember (EM) roasts coffee and runs 140 cafes in country R. It is a public limited company employing 2,600 people, and buys beans from around 4,000 small farms across three countries.

A campaign group has published a report claiming that some farms supplying EM pay their workers below the legal minimum wage in their own country. EM's directors say they were unaware of this.

EM is considering publishing an annual supply chain report that would name every farm it buys from, state what it pays them, and set out the findings of independent inspections.

Table 1.1: EM selected data

EM's finance director argues the money would be better spent opening new cafes. EM's marketing director argues that without the report, the campaign group's claims will go unanswered.