CAMBRIDGE INTERNATIONAL AS & A LEVEL BUSINESS: TEACHER’S RESOURCE

Exam-style questions and sample answers have been written by the authors. In examinations, the way marks are awarded may
be different.

Coursebook answers
Most of the answers are in ‘outline’ form indicating the appropriate points and skills that learners need
to include in their answers. They provide the necessary guidance to allow learners to develop and extend
the points for a fuller answer that contains the relevant skills. In many instances, there may be other valid
approaches to answering the question.

Chapter 4
Business in context
Learners’ discussion might include:
Environmental objectives
• Might reduce the focus of the business on profits.
• Could make the business and its products more appealing to customers, e.g. ‘green’ consumers.
Profit objectives
• Having a profit objective helps to create strategy because only those decisions that are likely to increase
profit will be taken by the management.
• Focusing on profit might mean that decisions are made that do not meet other objectives.

Activities
Activity 4.1
Learners’ own answers.

Activity 4.2
1 Learners’ answers might include:
• Managers and employees will know what is expected of them. This will avoid confusion and may
help to ensure that they are working towards the objectives which have been set. If all employees
are pulling in the same direction, it is more likely that the business will achieve its objectives.
Employees will better understand what the business is seeking to achieve.
• Clear corporate aims and objectives will provide a basis for setting strategic departmental targets
and individual targets for managers and employees. These objectives provide a clear guide for
management action. Management by objectives may be implemented to provide individual targets
for all employees which will contribute to achieving the overall objectives of the business.
2 Learners’ answers might include:
• A focus on shareholder value may mean that short-term profit is pursued at the expense of longer-
term growth of the business.
• Rather than re-investing profits, the business may pay higher dividends to shareholders. A firm
which does not distribute profits to shareholders may face a declining share value.

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 CAMBRIDGE INTERNATIONAL AS & A LEVEL BUSINESS: TEACHER’S RESOURCE

• As a news agency, Reuters may have objectives related to corporate social responsibility (e.g. a
commitment to reporting the truth). This may conflict with the objective of profit. This could
arise in its activities in countries where the business may come into conflict with state authorities.
Reuters, to maintain its reputation, will report the truth about events in a country. If these news
reports upset the government, Reuters could lose contracts to provide news stories to a state-
owned TV company, reducing profits.

Activity 4.3
1 The mission statement is useful as it identifies what the company is seeking to achieve. If
communicated with employees, the statement will give a sense of direction for the business. However,
staff were not involved in creating the mission statement so they may not identify with it. Shareholders
may accept the mission statement because the aim to be the number one waste business in the country
suggests the creation of shareholder value. The mission statement may also serve a useful purpose as a
public relations exercise due to its emphasis on protecting the environment.
2 The company accounts state an objective of expanding year on year, which does not fulfil the criteria
of being SMART. The problems that may occur from objectives not being SMART are:
• If the objective is not specific to the business, it does not provide a clear direction for the business.
There is, in effect, no clear goal for managers and employees to pursue.
• If an objective is not measurable, it is difficult to identify whether the objective has been achieved.
• If an objective is not achievable, it will demotivate managers and employees. If the business is
certain to fail to meet the target, there is little point in setting the target.
• If an objective is unrealistic given the resources of the business, achieving the objective will
consume too much of the business’s resources, causing it to face new problems.
• If the objective is not time-limited, it will be impossible to assess whether the objective has
been achieved.
3 Any reasonable answer using the data in the table or the text.
• The company is dumping waste in landfill. This is contrary to their new mission statement.
• Most waste is used to generate electricity and heat. This is described as reducing the impact on the
environment and thus meets the new mission statement.
• STS sales revenue has doubled between 2018 and 2021 with a reduced number of employees.
This indicates a more efficient use of resources.
• STS aims to be the number one waste business in the country. STS’s revenue as a share of the total
market size has increased from 16.7% in 2018 to 22% in 2021.
• Operating profit has increased from $3m in 2018 to $20m in 2021. This is almost a seven-fold
increase (567%). Increasing profit is meeting its aim to maximise returns to shareholders.
• Evaluation could consider that STS is some way towards reaching its financial and operating aims.
However, it does not yet have the resources needed to protect the environment when the level of
waste it deals with increases.

Activity 4.4
1 Learners’ answers might include:
• It provides targets to achieve and a measure of success (e.g. achieving the profit target of $90 000
within five years).
• With objectives set, June and Will can identify how to achieve them. They have identified the need
to improve image and raise prices.
2 Specific and measurable: a profit target of $90 000 per year has been set.
Achievable: opening a new salon and doubling revenue is achievable within the time frame. However,
Will is concerned about the employee and marketing problems associated with a new salon.

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 CAMBRIDGE INTERNATIONAL AS & A LEVEL BUSINESS: TEACHER’S RESOURCE

Realistic: the business has survived economic recession and increased competition. Although it
is covering costs, does it have the resources to open a new salon? The case does not suggest any
significant profits being available. However, its survival and their planning may mean that the business
can access necessary finance.
Time-limited: there is a clear timescale of opening the new salon and doubling revenue within three
years and long-term profit of $90 000 in five years.

Activity 4.5
Learners’ own answers.

Activity 4.6
1 Business ethics: moral guidelines that determine decision-making; code of conduct: rules and
guidelines on staff behaviour.
SCG may benefit from increased sales if it gains a reputation for ethical behaviour. It might also be
possible to charge higher prices, resulting in higher profits.
Fair treatment of employees will make recruitment easier for SCG as its reputation will be enhanced in
the labour market. Employees may be more motivated and this could increase labour productivity and
therefore improve SCG’s competitiveness.
2 If SCG uses unethical methods, it risks long-term damage to its reputation. This could result in lower
sales in Thailand and increased scrutiny from interest groups regarding its activities. Negative publicity
in the media could decrease demand. Brand reputation is difficult to build but easily destroyed.
However, in evaluation, in some countries failure to offer bribes will mean that SCG cannot win
contracts. So, there will be a loss of customers and therefore revenue. To be able to compete, some
managers might think it necessary for SCG to lower its ethical standards. However, on balance this
would be a mistake in the long run. Once the company’s reputation is damaged by a well-publicised
unethical action it will be very difficult to restore it. This will lead to a long-term decline in sales and
profit.

Exam-style questions
Short answer questions
1 It identifies core aims, which can then be communicated with stakeholder groups.
2 They are too vague as they are often a public relations exercise rather than SMART objectives.
3 Learners’ answers will vary, e.g. increasing shareholder value includes increasing dividends and the
share price. This may be achieved by increasing profit. To increase profit, a business might cut costs by
(learner should consider one of these):
• reducing employee pay
• spending less on health and safety
• reducing environmental standards and not properly disposing of waste.
These actions conflict with corporate social responsibility, which takes into account the impact of
decisions on society.
4 Private sector: objective of increasing profit and shareholder value because these businesses are owned
by people in the private sector who want a return on their investment.
Public sector: objective of providing a public service and profit is not the main objective because these
businesses are owned by the state.
5 Specific, Measurable, Achievable, Realistic and Time-limited objectives.
6 Economic: make a profit for re-investment.
Social: provide benefit to society (e.g. jobs).
Environment: minimise the environmental impact of business activity.

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 CAMBRIDGE INTERNATIONAL AS & A LEVEL BUSINESS: TEACHER’S RESOURCE

7 Learners’ answers will vary, e.g. objectives change over time due to changes in the external
environment, e.g. in a recession, the objective may change from sales growth to survival.
8 They give a target to achieve and can motivate managers and other employees.
9 Ethics can influence where to source supplies, e.g. using Fairtrade products produced in ethical ways.
10 It may make the business price uncompetitive due to higher costs and therefore the business may lose
sales to competitors. Customers may be price sensitive so will not pay more for the products of an
ethical business.
11 Increase proportion of students achieving three A Levels at grade B or above to 70% within two years.
This objective is specific, measurable, achievable, realistic and time-limited.
12 To increase market share by 5% in the next three years.
13 It might be better to sacrifice short-term profit in order to provide finance for investment in R&D of
new medicines. If these are successful, they will increase profits in the longer term.
14 To achieve work–life balance by reducing the risk of overwork, which can lead to health problems.
15 The objective for a new business is typically survival, as a high proportion of businesses fail in the first
year of operations. As the business establishes itself, the objective might shift to a focus on growth and
increasing market share.
16 Learners’ answers will vary, e.g. marketing advantages; many consumers now aim to buy products which
do not damage the environment or which are not produced by people in very bad working conditions.
A business which follows a strict ethical code will be able to promote itself as an ethical supplier.
17 Learners’ answers will vary, e.g. if the objective is to expand export sales by 10%, products must be
designed and promoted in ways that appeal to customers in other countries with different cultural values.

Essay questions
1 a Define corporate social responsibility (CSR). Learners’ answers will vary, e.g. CSR motivates
workers; attracts customers; enhances business reputation; generates positive media attention.
Learners should apply two of these to a business context and explain why they are a benefit.
b If objectives are specific, measurable, achievable, realistic, timed, it:
• gives a target to achieve and can motivate employees
• increases productivity by having objectives
• enables managers to know if the business has been successful.
If they are not achievable, this will demotivate employees.
Objectives may need to be agreed so that employees feel empowered.
If they are not realistic, the business may lack the resources to achieve the objectives.
If objectives are not specific, managers do not have a clear goal to work towards.
Evaluation could consider that having SMART objectives is important but cannot guarantee
success as the business environment is dynamic. There are external factors that a business cannot
control that will help determine success. Answers could be illustrated with explained examples of
external changes.
2 a Learners’ answers will vary, e.g. in an ethical business, objectives are likely to focus less on profits
and cost cutting. Instead, objectives will reflect responsibility for the impact of business activities
on customers, employees, communities and the environment. Therefore, activities will need to be
more ethical, e.g. paying workers a living wage, paying suppliers on time, recognising trade unions,
not employing child labour, minimising pollution, disposing of waste responsibly, recycling and
not using bribes to win contracts.
b Define mission statement. A clear mission statement may provide a number of benefits to a
retail business:
• It helps motivate employees, especially when the statement promotes values that employees are
likely to share.
• It attracts customers and other outside groups that can identify with the mission statement.

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 CAMBRIDGE INTERNATIONAL AS & A LEVEL BUSINESS: TEACHER’S RESOURCE

• Moral statements or values to be worked towards can help to guide and direct employee
behaviour.
• It helps establish what the business seeks to achieve. The mission statement can be a starting
point from which all goals are derived.
• It provides a basis for advertising and a consistent image to customers.
However, in evaluation, the beneficial impact of having a mission statement will be influenced by a
number of factors. Answers should analyse two of the following possible limitations and apply them to
a large retailing business.
• If a mission statement is to be useful, it does need to be clear. Many mission statements are
vague and therefore do not set a real direction for the business as such statements could apply to
any business.
• To aid success, the mission statement should be a genuine statement of intent, not just a public
relations exercise.
• Communicating the mission statement is very important. Making sure employees are aware of the
business’s vision is essential if it is to have any effect on behaviour and motivation.
• Having an appropriate mission statement is also important. A mission statement that simply
focuses on shareholder value will do little to motivate employees or encourage other stakeholders.
• Mission statements do not set SMART objectives for a business and they do not tell managers
what decisions to take or how to manage the business. They are merely a framework for the
business to develop within.
• There are many external factors that influence the success of a large retailer: competitors, the
economy, legal factors, technological factors.

Data response questions

1 Peugeot Citroën
a i Growth.
ii Long-term plan of action to achieve business objectives.
b i 0.45 × 4m = 1.8m
ii Meeting the objective depends on the ability to penetrate new markets such as the Indian and
US markets. Peugeot has been absent from the US market since 1991. It may be difficult to
re-establish the brand in this competitive market.
c SMART objectives that have been set include: rate of return of 10% and 7.5% profit margin of
each car sold by 2025. These objectives:
• give a target to work towards to allow for measurement of performance
• can aid in motivating employees and managers by their having clear targets.
d Business objectives provide the goals a business is to achieve. Business strategies are the long-term
plan of action to achieve the goals. Peugeot has strategies to achieve the objective of selling 4m
cars by 2025. These include entering the Indian market, which offers significant growth potential,
and re-entering the US market with a new model line-up including new electric vehicles. To
increase the profit margin on each car sold, Peugeot has closed factories and made redundancies.
Objectives have been discussed with employees so the changes required are understood and
accepted. Without objectives, Peugeot would not be able to develop focused strategies so the
success of the business will be greater with long-term plans based on clear objectives.

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 CAMBRIDGE INTERNATIONAL AS & A LEVEL BUSINESS: TEACHER’S RESOURCE

2 South American Forest Corporation (SAFC )

a i Communicates business purpose.
ii A decision informed by moral guidelines (e.g. not using child workers).
b i Profit = revenue – total cost
Revenue = $45m + 15% = $51.75m
Profit = $51.75m – $30m = $21.75m
ii Directors may decide to pay a higher dividend payment. A dividend is part of the return
for investing in a company. Higher dividends would encourage shareholders to invest in
this company.
c Employment of child workers is considered in many countries to be unethical. Children should be
in education, rather than working, in order to enhance their life opportunities.
Increasing the rate of tree felling by 50% without an equivalent increase in replanting will degrade
the natural resources available to society and the economy. This approach is unsustainable in the
long term.
d Learners’ answers might include:
• The current approach to the use of natural resources is unsustainable. Therefore, in the future
there will be no trees locally for them to harvest and sell, resulting in a decrease in sales.
• Using child workers may lead to bad publicity in the media and potentially reduce sales.
A more socially responsible approach could give SAFC a competitive edge and could make
demand less price sensitive so higher prices could be charged.
• However, making ethical decisions will increase costs (i.e. paying workers more and the cost of
replanting trees). As the market is competitive, if prices are increased due to ethical decisions,
demand may decrease. SAFC has increased sales and profits by making unethical decisions.
Are customers concerned about child workers and exploitation of the natural environment?
• Evaluation could include a consideration of the growing importance to consumers of ethical
decisions and sustainable products, meaning that SAFC must adopt more ethical strategies
in future.
3 Kenya Re
a i Target to aim for.
ii  When businesses consider the interests of society by taking responsibility for the impact of
their decisions and activities on customers, employees, communities and the environment.
b Lower sales growth objectives as there is more competition for market share.
Lower targets for profit margins as pricing may need to be more competitive.
c To increase return on capital: the benefit is that greater profitability provides profits to re-invest.
This maximises shareholder value, which will keep shareholders satisfied and encourage future
investment if required.
To increase revenue in new and existing markets: the benefit is that greater sales growth will
increase the market share and market power of Kenya Re. Economies of scale from growth reduce
unit costs, making the business more competitive.
d Yes: it helps create a USP in a competitive industry; helps build reputation and brand loyalty,
which can increase revenue in the long term; supports local communities, which can lead to
positive publicity.
No: it is a competitive industry so it is more important to cut costs to keep prices as low as
possible; the cost of premiums to customers might have to rise if too much is spent on CSR
projects; it depends on how responsive to price changes consumer demand is.
Overall judgement in context is required such as an assessment of whether this insurance company
deals directly with final consumers or not. If it does not, its business customers might be more
concerned with low-cost insurance than with the social responsibility policies of insurance providers.

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