Globalisation | Edexcel A Level Business Exam Questions & Answers 2015 [PDF]

1

4 marks

Read the following extracts (E to G) (opens in a new tab) before answering

Using the data in Extracts E and F, calculate the amount Pfizer would have saved in 2014 if it had paid corporation tax in Ireland, rather than the USA. You are advised to show your working.

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8

10 marks

Extract A
Vinted Ltd: A growing clothing business
Vinted Ltd was founded in Lithuania in 2008 by Milda Mitkute and Justas Janauskas, who remain major shareholders. It operates across Europe and the USA, and recently raised €250m in share capital to help fund expansion into new markets.
Vinted currently has 45 million users who buy and sell clothes on its platform. Sellers pay no fees until the items are sold and then Vinted receives a percentage of the selling price.
Vinted utilises several trends, such as affordable fashion, and the use of online channels. Vinted is part of the circular economy which describes how goods, such as clothing, are recycled and re-sold, helping to prolong usage in a sustainable way.
(Source: adapted from techcrunch.com)

Extract B
Global fashion market trends in 2023
The rise of resale clothing
The secondhand clothing market will grow three times faster than the global clothing market overall. Technology and online marketplaces are driving this trend, with 70% of customers saying it's easier now to shop secondhand than it was five years ago. With customer incomes squeezed, resale helps with affordability.
Sustainability
Fast-fashion brands are sometimes criticised for the methods they use to manufacture and produce clothing, involving long global supply chains. 42% of global customers prefer to purchase eco-friendly and sustainable products.
Brick-and-mortar
22% of online returns are because products look different in reality when received by the customer. This expense is driving many fashion brands back into traditional retail. Customers want both online and offline sales channels: 50% of customers are likely to look at a product online and buy it in a physical store; 50% say they do the opposite: viewing products in-store and buying them online.
(Source: adapted from shopify.com)

Extract C
Clothes manufacturing in China
Value of textile exports in billions of US dollars, 2020
(Source: adapted from OEC)
Previously clothing brands were attracted to China by a large labour force, low labour costs, clothing manufacturing technology, and high product quality. Factories concentrated in coastal port cities, also help with transportation. Fast-fashion brand Shein has its base in China.
Mango’s chief executive, Toni Ruiz, said he was considering buying less from China. “What we’re looking at is the extent to which all this global sourcing, developed over many years, might become more local,” he said.
According to China’s National Bureau of Statistics, the average factory wage doubled between 2013 and 2021. Products manufactured in China are not as competitive once shipping and transport costs are taken into account. An increasingly important consideration for retailers is traceability in the supply chain after years of widely reported labour abuses in China.
Many clothing brands are moving production to Turkey, which has a customs agreement with the European Union. Turkey also has a free trade agreement with the UK. Turkey has easy access to raw materials, such as cotton, as well as having a skilled workforce protected by strong labour laws. Hugo Boss and Zara already use Turkey as a production location.
(Source: adapted from https://www.ft.com/)

Assess whether the global clothing market could be considered a dynamic market.

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3

20 marks

Extract A
Ravensworth Pumps Ltd
Ravensworth Pumps Ltd manufactures industrial pumps at a single plant in Sheffield, where it employs 210 people. It exports 3,400 pumps a year to a European trading bloc, at a selling price of £4,200 each.
From January 2028 the bloc will apply a 14% tariff to imported industrial pumps, as part of a policy to support its own manufacturers. Two further increases in the rate are under discussion.
The bloc has also introduced a rule requiring public contracts to contain at least 40% local content. Ravensworth cannot currently bid for this work, which it estimates at 1,500 pumps a year.
Managing Director Cerys Whitlock said: "We can find a way to pay the tariff. We cannot find a way to pay our way past the local content rule."

Extract B
Ravensworth Pumps Ltd - export data

Extract C
The two options
Option 1 - build an assembly plant inside the bloc. Capital cost £6.8m, with additional fixed costs of £1.9m a year. Local assembly would raise variable costs by £160 a pump, but would remove the tariff entirely and would meet the 40% local content rule, opening up an estimated 1,500 pumps a year of public contracts. The Sheffield plant would fall to 48% capacity utilisation.
Option 2 - absorb the tariff. Ravensworth would continue to export from Sheffield and would pay the tariff itself rather than raise its price. No capital investment would be required.

Extract D
Ravensworth's trading environment
The UK has been negotiating a trade agreement with the bloc for three years. No date has been set for its conclusion.
Competitors exporting into the bloc from outside it face the same 14% tariff.
Local assembly would still use components made in Sheffield, but Ravensworth would need to verify that the 40% local content threshold is met on every contract.
Recruiting and training an assembly workforce inside the bloc would take around nine months.

Ravensworth Pumps Ltd must respond to the new tariff on its exports. It is considering either building an assembly plant inside the trading bloc or absorbing the tariff and continuing to export from the UK.

Evaluate these two options and recommend which one Ravensworth Pumps Ltd should choose

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Globalisation (Edexcel A Level Business): Exam Questions