Global Markets & Business Expansion (Edexcel A Level Business): Exam Questions

Extract F

Brazilian Real to US dollar exchange rate 2018–19

(Source: adapted from https://tradingeconomics.com/brazil/currency)

Using the data from Extract F, assess the impact of the exchange rate movements between January 2019 and April 2019 on the total costs of a business, such as Tropicana, which imports to the USA from Brazil

Extract A

Benefits of McDonald's to London and the UK

London represents an important part of the McDonald's story. It opened its first UK restaurant in Woolwich in 1974.

In 2016, McDonald's added £540 million in revenue to the Greater London economy. 82% of restaurants in London are owned and operated by 24 franchisees – local entrepreneurs – with the remainder operated by the corporate group (McOpCo). McDonald's and its franchisees have become important members of communities in London: investing in skills and developing people, supporting local causes and getting kids into football.

Today McDonald's has 183 restaurants across London, employing 15,000 people, with a presence in every borough. In the UK, McDonald's operates over 1,250 restaurants and employs just over 115,000 people. Over 80% of restaurants are operated by franchisees as local businesses. Worldwide, today, there are over 38,000 restaurants.

(Source: adapted from https://www.london.gov.uk/sites/default/files/McDonald%27s%20 Resturants%20Ltd%20%282650%29.pdf)

Using Extract A, assess two likely reasons why US fast food companies such as McDonald's choose to locate restaurants in the UK

Extract E

Comparison of the average manufacturing costs in 2014 (China = 100)

(Source: adapted from © 2017 The Boston Consulting Group)

Extract F

Ebac Ltd

Ebac Ltd is Europe's leading manufacturer of bottled water coolers and domestic dehumidifiers. It is a privately owned, family-run, company. Ebac Ltd has been the market leader in Western Europe for water coolers since the mid-1990s. For the past 30 years Ebac Ltd has continued to expand its UK operations.

Ebac Ltd employs over 200 people in the North East of the UK, where labour costs are below the UK average. Ebac Ltd retains a strong export focus with 70% of its turnover coming from sales to Continental Europe. In late 2015 Ebac Ltd began a £7m expansion project that would make it the only UK-based maker of washing machines, filling a gap left behind when Indesit moved production of Hotpoint machines to Italy. Ebac Ltd's washing machines will be sold in the UK only.

Ebac Ltd develops innovative quality products to meet customer needs. Its employees help make this happen.

The Ebac Ltd Foundation was set up in 2012. Its principles include the commitment that all profits are invested back into the company to generate growth and more jobs, and into the community to sponsor training, education and sport.

(Source: adapted from © Ebac.com)

Extract G

The Haier road to growth

The Tianzun is an air conditioner with a wind tunnel that draws air through it. Haier's rapid introduction of this product is typical of the China-based company's track record since the late 1990s. Since 2011, it has held the largest worldwide market share in white goods*.

Unlike Western consumers, many Chinese people hand-washed their underclothes every day at home. They found it more hygienic and socially discreet to wash underclothes separately from other clothes and not use public washing machines. In response, Haier launched a small, low-energy washing machine that could easily fit into a small, crowded urban apartment.

In 1997, recognising the needs of college students in dormitory rooms, Haier launched mini-refrigerators in the United States; it followed with wine refrigerators in 2004. Meanwhile, in Pakistan, Haier sold extra-large washing machines designed for heavy robes.

Haier is a company worth 38 billion US dollars with upmarket brands in China. Haier is growing in the mass markets of the United States, Europe and Japan, which are dominated by multinationals such as Bosch and Whirlpool.

*'White goods' refers to household appliances such as washing machines, tumble driers, fridge-freezers etc.

(Source: adapted from © 2017 PwC. All rights reserved)

Assess the likely impact on Ebac Ltd of choosing the UK as a production location

Read the following extracts (A to D) (opens in a new tab) before answering

Assess the factors that might affect the success of a global business such as Disney when entering a new market such as China.

Extract D

Estimates of price elasticity of demand (PED) of car brands

(Source: adapted from https://repository.library.northeastern.edu/ files/neu:349589/fulltext.pdf)

Extract E

Current and projected number of ridesharing users, globally

Ridesharing is an arrangement in which a passenger travels in a private vehicle driven by its owner for a fee by a means of a website or app.

(Source: from https://www.statista.com/outlook/368/100/ ride-hailing/worldwide#market-revenue)

Extract F

Ridesharing businesses in India

Ola is an Indian ridesharing business. Its main competitor is American-owned Uber. Ola's strength is local knowledge; it has always accepted cash payments, while it took Uber nearly two years to do the same. Ola's app also supports nine regional languages for drivers, which is important as only 10% of Indians speak English. Ola offers three different services: premium, low-cost and car-pooling. Ola's auto rickshaws, which have their own safety standards, are successful in smaller cities where distances are shorter.

After its exit from China, Uber said it would divert a 'significant portion' of its planned 1 billion US dollar marketing budget to India. This led to calls from Indian businesses for government laws to limit investment by non-Indian businesses into the market.

In one of Uber's other markets, the USA, a former Uber engineer alleged sexual harassment by her manager, and one of the founders of Uber was caught swearing at an Uber driver. Other questions about Uber's business practices have been raised: trade unions have requested drivers receive basic rights such as a living wage and unemployment insurance; Uber classifies its drivers as independent contractors and so they are not eligible for benefits such as overtime and health insurance.

Uber's pricing structure has also been criticised, after allegations it routinely overcharges customers. It was recently sued for not providing enough vehicles accessible to wheelchair users.

(Source: from https://qz.com/1200878/ with-uber-in-crisis-ola-zooms-ahead-in-indias-taxi-wars/ and https://www.theverge.com/2017/6/30/15904510/uberopen-letter-board-ethical-recommendations)

Extract G

Ford and Mahindra joint venture

Mahindra, an Indian-based car manufacturer, and Ford have signed a deal to develop a new Sports Utility Vehicle (SUV) for the Indian market. These will have a Ford body and badge, but will be based on a car chassis (frame) that will be made by Mahindra.

The deal will see Mahindra and Ford cooperate with each other for a period of three years. While Ford may gain economies of scale and a lower cost structure from Mahindra's new car chassis, Mahindra will get access to Ford's engineering knowledge. Mahindra will also get support in global emerging markets, including Ford's manufacturing and car distribution network. The Managing Director of Mahindra Ltd said, "Both teams are working together and building on mutual strengths. We are excited about the synergies unveiled through this joint venture and the potential opportunities it will bring."

(Source: adapted from https://auto.ndtv.com/news/ford-and-mahindraconfirm-jointly-developed-suvs-electric-car-for-india-1827425)

Assess the likely consequences for Ford of its joint venture with Mahindra

Extract B

Forecast UK consumer spending habits in 2022

Figures show forecast spending in 2022 when compared to 2018.

OTT stands for 'over-the-top', the term used for the delivery of film and TV content through the internet with companies such as Netflix or Amazon Prime, without requiring users to subscribe to a traditional cable or satellite pay-TV service such as Sky or BT Vision.

(Source: https://www.pwc.co.uk/industries/entertainment-media/ insights/entertainment-media-outlook.html)

Extract C

ITV Chief: Now is last chance to build British challenger to Netflix

The new Chief Executive of ITV, Carolyn McCall, declared that building a UK subscription video-on-demand service is a priority in order to compete with the US-based streaming superpowers Netflix and Amazon.

Netflix's core US market is close to saturation, so its international markets are driving growth. UK viewers are flocking to the US giant: Netflix has almost 10 million UK subscribers, compared to Sky's 9.6 million pay-TV and Amazon Prime Video's 7.3 million subscribers.

McCall said 'to provide the depth and breadth of programmes for an ITV subscription video-on-demand service, programmes that were previously licensed to Netflix must instead be kept by ITV. This means no more deals such as licensing Love Island, the ITV2 reality TV show, to Netflix.

'The best chance of creating a viable rival to Netflix is for the UK's public service broadcasters (PSBs) to join forces'. However, she conceded that a joint venture between the publicly-listed ITV, the licence fee funded BBC and state-owned commercially funded Channel 4 – is proving difficult.

'We all have different ownership structures and we all have slightly different objectives.'

ITV has Britbox, a joint venture streaming service with the BBC. However, it is available only in the US. In 2007 the BBC, Channel 4 and ITV created the OTT service Kangaroo, but it was ultimately blocked by the UK competition regulator in 2009.

Netflix plans to raise 2bn US dollars so it can invest in producing new programmes. The costs of its streaming services amount to 30bn US dollars – higher than the annual revenue it expects to receive from its 130 million users in 190 countries across the world, with the US its largest market.

(Sources: https://www.theguardian.com/business/2018/oct/21/itv-chief-now-is-lastchance-to-build-british-challenger-to-netflix? and https://www.theguardian.com/ media/2018/oct/22/netflix-plans-to-raise-2bn-as-it-invests-in-new-content)

Using the data in Extracts B and C, assess the extent to which saturated markets might stimulate a business such as Netflix to trade internationally

Extract E

Pfizer merges with Allergan

In 2015, American healthcare business, Pfizer, announced a merger with Irish Botox maker, Allergan plc, in a deal worth 160bn US dollars. The merger created the world's largest producer of drugs and shifted Pfizer's headquarters to Ireland – a member of the European Union. Its headquarters are in Dublin; the business also manufactures in Cork and Sligo. This was the biggest ever instance of a US company relocating its headquarters overseas in order to lower its taxes.

The deal provided access to about 70 additional worldwide markets for specialist Allergan products, such as Botox wrinkle treatment, Alzheimer's drug Namenda and dry-eye medication Restasis. It was not known at that time how many jobs would be lost as a result of the merger.

For 166-year-old Pfizer, Allergan was the fourth merger or takeover in the previous 15 years, following the purchases of Warner-Lambert, Pharmacia and Wyeth. Pfizer made profits of 9.135bn US dollars in 2014. This also caps a record year for global healthcare mergers, taking their total value in 2015 to more than 600bn US dollars.

(Source: adapted from http://www.reuters.com/article/usallergan-m-a-pfizer-idUSKBN0TB0UT20151124)

Extract F

Top rate of Corporation Tax as (%) of profits in selected economies

(Source: adapted from https://home.kpmg.com/xx/en/home/services/tax/ tax-tools-and-resources/tax-rates-online/corporate-tax-rates-table.html)

Extract G

Multinationals and the economy of Ireland

In 2015, Microsoft was Ireland's largest business, with a turnover of €19.8bn, and became one of the seven multinationals in the top ten largest businesses in Ireland. Just three Irish companies made it into the top ten, with CRH (building materials) in second place and Irish energy company DCC taking fifth place. Google took third place, with other IT businesses Dell and Oracle also in the top 10. Facebook climbed nine places to 28th.

The role of multinationals is a hotly debated topic, not only in Ireland but internationally too.

Foreign multinationals bring with them knowledge and technology; there are also gains from the increased competition generated by incoming firms. However, evidence of direct effects in Ireland is mixed. There are positive impacts from multinationals in sectors such as software and pharmaceuticals. Some evidence of a positive relationship between Foreign Direct Investment (FDI) and increased exports and productivity also exists.

Multinationals have had an impact on the labour market of Ireland, including on the average wage of the workers in the Irish economy. A high demand for high-skilled labour may lead to skill shortages, most notably in the IT sector.

(Sources: adapted from http://www.independent.ie/opinion/columnists/dan-obrien/weshould-eke-more-entrepreneurs-out-of-multinationals-31579675.html http://businessetc.thejournal.ie/irelands-biggest-companies-2116085-May2015/)

Assess the likely impact on a business, such as Pfizer, of a global merger with a business such as Allergan

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

When choosing to expand overseas, there are a number of factors that may limit the success of this strategy

Assess the likely importance of these factors to Pure Gym’s expansion into emerging markets, such as those in Asia, South America or Africa.

Extract A

Commonwealth Games, Birmingham, 2022

Durban, South Africa, was due to stage the Commonwealth Games 2022 but withdrew due to financial and practical concerns. Bids were also submitted by Edmonton, Canada and Liverpool, but the Commonwealth Games Foundation (CGF), chose Birmingham, the UK’s second biggest city.

Over 1,000 people will be recruited to deliver Birmingham 2022. Job vacancies will include roles related to administration, planning, marketing and security. Recruitment and training of staff will be led by Gi Group, a world leader in human resource management.

Gi Group will deliver comprehensive recruitment services and fill over 1,000 roles across multiple specialisms, including selection, training and on-the-job support. Gi Group will also assist all Birmingham 2022 staff with developing their careers from August 2022, once the Games are over.

Extract B

Huge progress at the Birmingham 2022 Alexander Athletics Stadium

Since planning permission was granted in January 2020, the demolition of three existing stands at the Perry Park site has been completed and work has started on rebuilding the stands with steelwork from British companies.

The £184m scheme remains on budget and scheduled for completion in spring 2022, ahead of its initial use as the venue for the Commonwealth Games athletics competition.

After the Games, the stadium is set to become a focal point of health, wellbeing, sport, academic and community activity as part of a £500m City of Birmingham Regeneration Scheme.

The stadium, which will hold around 30,000 spectators at each session during the Games, will switch to a permanent capacity of around 18,000 post-Games – the largest permanent facility capable of hosting international athletics in the UK. Furthermore, it will continue to be the home of the world-famous Birchfield Harriers Athletics Club.

Extract C

Capital funding and business partnerships for 2022 Commonwealth Games

Extract D

Commonwealth Games vision and mission (Extracts from)

Ian Reid, Birmingham 2022 Chief Executive Officer stated: “In order to deliver this iconic celebration of sport we need to forge dynamic, new business partnerships. The Games will boost jobs and investment and promote Birmingham’s national and international reputation.”

The Birmingham 2022 Commonwealth Games will

Embrace and drive the youth, diversity, humanity and pride of the region and the 76 countries of the Commonwealth.

Inspire, engage and connect communities and athletes to realise their full potential and live happier, healthier lives.

Drive sustainable economic growth and aspiration; creating opportunities through trade, investment, jobs and skills.

Transform and strengthen local communities, working together to deliver new and improved homes, facilities and transport links.

Assess the factors that may have led to Birmingham, UK being chosen as the location for the 2022 Commonwealth Games.

Extract F

Country data – Japan

Using the data in Extract F, assess Sony's decision to manufacture the PlayStation 5 in Japan.

Extract E

Monthly sugar price in US cents per lb (pound in weight)

(Source: adapted from https://tradingeconomics.com/commodity/sugar)

Extract F

Trends in the Indian soft-drinks market

(Source: adapted from https://www.enterpriseappstoday.com/)

Extract G

Fever-Tree

In 2004, Fever-Tree began as a UK-based startup selling high quality tonic water. They now sell a variety of 14 different flavoured mixers.

It began exporting to markets, particularly in India, by building brand reputation. It recognised the importance of understanding local markets. Market research helped ensure compliance with local regulations, food safety standards, labelling requirements and import-export laws, including tariffs and duties.

Fever-Tree built relationships by connecting with local bartenders, chefs and other spirits brands operating in its target markets, Mumbai and Delhi.

Sourcing ingredients from India is important. Indian consumers prefer local ingredients. India's cocktail culture has traditional and modern influences, with a growing appreciation for premium, innovative products. India's rapidly growing middle class offers new opportunities.

One way Fever-Tree could overcome the challenges posed by trade barriers, such as tariffs, would be to set up a production facility in India.

(Source: adapted from https://www.ft.com/)

Extract H

Coca-Cola in India

The Coca-Cola Company entered the Indian market in 1956.

In 2004, after years of protests by local villagers, a Coca-Cola bottling plant was forced to close as it allegedly contaminated groundwater with toxins. The villagers also suffered crop failures due to lack of irrigation water, as the bottling plant was causing water shortages.

As a result of the closure of the bottling plant, the Coca-Cola Company has adapted its business model. It now uses independent Indian bottling partners, often family-owned businesses, which employed local workers. Coca-Cola is distributed through local retailers. Local suppliers create jobs in agriculture, manufacturing, supply chain, transportation, and retail.

Coca-Cola supports communities through The Coca-Cola Foundation. These address environmental and social priorities like education, economic empowerment, recycling, and disaster relief.

(Source: adapted from https://www.historyoasis.com/ and https://esgnews.com/)

Extract I

India Cola market

The per capita consumption of soft drinks in India is 4-5 litres per year; the global average is 30 litres.

Indian brand Campa Cola sells 200 ml bottles for 10 rupees, half the price of a similar sized Coca-Cola or Pepsi product. Campa Cola’s product range is limited compared to its competitors. It is investing in bottling plants, which will increase production capacity.

Coca-Cola’s portfolio includes brands like Thums Up, Maaza (fruit beverage), and Kinley (water). Coca-Cola’s sales have grown in rural markets compared to urban areas. It aims to ensure different products are priced simply for rural areas, such as pricing products at either 10, 20, or 50 rupees, to make cash transactions easy. This is important in regions where physical cash is the most popular method of payment.

Coca-Cola aims to sell more to middle-class urban markets, maximising the potential to charge premium prices.

(Source: adapted from https://economictimes.indiatimes.com/)

Assess the factors that might affect the success of a business, such as Fever-Tree, entering a new market such as India.

Extract D

BT Sport agrees joint venture with Discovery Eurosport

On September 1, 2022, BT Group and Discovery Eurosport announced completion of their 50:50 joint venture. The deal involves Discovery Eurosport giving BT Sport's existing customers the rights to view its content, creating a stronger competitor to Sky Sports in the UK. The joint venture would combine a wide catalogue of sports broadcast rights. This includes the English Premier League and UEFA Champions League football matches in the UK, cycling's Grand Tours and the tennis Grand Slams, as well as other major sporting events.

In 2022 BT Sport had 4 million subscribers, while Eurosport had approximately 157 million subscribers. The basic BT Sport subscription was £18 a month in the UK. Eurosport was €5.99 a month, converted to pounds (£), for UK customers. After the joint venture the price for both channels is £29.99 a month, which also includes access to many additional Discovery channels.

Eurosport is already owned by the Discovery channel group, so BT's decision to form a joint venture makes sense for both businesses. The deal helps Discovery to compete in the TV streaming wars. It sees sports as a way to differentiate itself from competitors, such as Disney and Netflix that don't currently offer sports coverage.

(Source: adapted from Copyright The Financial Times Limited 2023. All rights reserved.)

Assess the likely impact on BT Sport of its joint venture with Discovery Eurosport.

Extract E

Pfizer merges with Allergan

In 2015, American healthcare business, Pfizer, announced a merger with Irish Botox maker, Allergan plc, in a deal worth 160bn US dollars. The merger created the world's largest producer of drugs and shifted Pfizer's headquarters to Ireland – a member of the European Union. Its headquarters are in Dublin; the business also manufactures in Cork and Sligo. This was the biggest ever instance of a US company relocating its headquarters overseas in order to lower its taxes.

The deal provided access to about 70 additional worldwide markets for specialist Allergan products, such as Botox wrinkle treatment, Alzheimer's drug Namenda and dry-eye medication Restasis. It was not known at that time how many jobs would be lost as a result of the merger.

For 166-year-old Pfizer, Allergan was the fourth merger or takeover in the previous 15 years, following the purchases of Warner-Lambert, Pharmacia and Wyeth. Pfizer made profits of 9.135bn US dollars in 2014. This also caps a record year for global healthcare mergers, taking their total value in 2015 to more than 600bn US dollars.

(Source: adapted from http://www.reuters.com/article/usallergan-m-a-pfizer-idUSKBN0TB0UT20151124 (opens in a new tab))

Extract F

Top rate of Corporation Tax as (%) of profits in selected economies

(Source: adapted from https://home.kpmg.com/xx/en/home/services/tax/ tax-tools-and-resources/tax-rates-online/corporate-tax-rates-table.html)

Extract G

Multinationals and the economy of Ireland

In 2015, Microsoft was Ireland's largest business, with a turnover of €19.8bn, and became one of the seven multinationals in the top ten largest businesses in Ireland. Just three Irish companies made it into the top ten, with CRH (building materials) in second place and Irish energy company DCC taking fifth place. Google took third place, with other IT businesses Dell and Oracle also in the top 10. Facebook climbed nine places to 28th.

The role of multinationals is a hotly debated topic, not only in Ireland but internationally too.

Foreign multinationals bring with them knowledge and technology; there are also gains from the increased competition generated by incoming firms. However, evidence of direct effects in Ireland is mixed. There are positive impacts from multinationals in sectors such as software and pharmaceuticals. Some evidence of a positive relationship between Foreign Direct Investment (FDI) and increased exports and productivity also exists.

Multinationals have had an impact on the labour market of Ireland, including on the average wage of the workers in the Irish economy. A high demand for high-skilled labour may lead to skill shortages, most notably in the IT sector.

(Sources: adapted from http://www.independent.ie/opinion/columnists/dan-obrien/weshould-eke-more-entrepreneurs-out-of-multinationals-31579675.html http://businessetc.thejournal.ie/irelands-biggest-companies-2116085-May2015/)

The government of Ireland supports the location of multinationals, such as Pfizer, in their country if this benefits the local and national economy overall

Evaluate the likely impacts on the Irish economy of Pfizer locating there and recommend if the Irish government should have supported this decision or not

Extract D

Mindful Chef sees sales boost

Childhood school friends Rob Grieg-Gran, Giles Humphries and Myles Hopper founded Mindful Chef in 2015. The London-based delivery company now employs 27 people and aims to make healthy eating easy by creating healthy food boxes with locally sourced, high quality ingredients, complete with tasty recipes.

Since its launch, Mindful Chef has grown rapidly, with a 178% increase in sales in 2019, delivering nearly two million meals to UK consumers, with annual sales of £10 million.

The sales boost could enable Mindful Chef to grow its customer base in the UK to second place behind market leader Gousto, helping it to capitalise on the expanding recipe box market, which is forecast to double over the next 10 years.

More ambitious long-term expansion plans also include exploring options to either undertake a global merger with US company Blue Apron, or a joint venture with French supermarket chain Auchan to help secure customers in France.

(Source: adapted from http://www.fruitnet.com/fpj/article/177512/ mindful-chef-gets-6m-boost-1)

Using the data in Extract D and your own knowledge of business, evaluate and recommend whether Mindful Chef should seek a joint venture with Auchan, France or seek a global merger with companies such as Blue Apron, US

Extract E

PulseTech plc

PulseTech plc is a UK-based public limited company that designs and sells wearable technology products, including fitness trackers and smart health monitors. Its products are sold online and through electronics retailers in the UK, Europe and North America.

PulseTech's strategy focuses on innovation and data analytics. Its products allow users to track physical activity, sleep patterns and heart rate. The business invests heavily in research and development (R&D) to differentiate its products and maintain a competitive advantage.

Extract F

PulseTech plc – selected financial information (2023)

PulseTech's directors are under pressure from shareholders to improve profitability, following a slowdown in revenue growth during 2023.

Extract G

Production capacity and outsourcing

PulseTech currently assembles its products at a factory in Eastern Europe. The factory is operating at 92% capacity utilisation.

Demand forecasts suggest that sales could increase by up to 30% over the next two years if PulseTech launches a new health-monitoring device. To meet this demand, PulseTech is considering two options:

• Expanding its existing factory

• Outsourcing production to a specialist electronics manufacturer in Asia

Outsourcing would reduce PulseTech's control over production but could lower unit costs.

Extract H

The global wearable technology market

The global wearable technology market has grown rapidly over the past decade. The market was valued at 61.3bn US dollars in 2020 and is forecast to reach 150.6bn US dollars by 2030, representing strong long-term growth.

Growth is driven by increased health awareness, advances in sensor technology and the integration of wearable devices with smartphones and health apps.

However, the market is characterised by:

• Rapid technological change

• Short product life cycles

• High levels of research and development spending

PulseTech's senior managers must decide how best to position the business to benefit from future market growth.

PulseTech plc must decide how to meet forecast growth in demand for its products.

Evaluate the two options of:

• expanding its existing factory, or

• outsourcing production to a specialist manufacturer.

Recommend which option PulseTech plc should choose to support its long-term strategy.