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 5
Business in context
Learners’ discussion might include:
Different groups have different interests and objectives
• Tour operators will benefit from increased demand to visit Machu Picchu and can make more profit.
• Government in Peru is concerned about jobs and economic growth to increase living standards.
• Conservationists want to preserve this major historical site and are concerned about the damage that
might result from increased tourism.
• Environmental groups are concerned about the increased pollution and CO2 emissions, which
contribute to global warming.
Government may:
• regulate the number of flights to control tourist numbers
• use taxes to pay for environmental protection.

Activities
Activity 5.1
1 Build new factory to expand business
• Positive impacts on owners and shareholders: increased scale of production, reducing unit costs
and increasing profit; increased output and profit to pay dividends.
• Negative impacts on owners and shareholders: capital investment, increasing gearing and interest
payments; disruption to production in the short term.
• Positive impacts on suppliers: increased demand for components; higher sales so higher profit;
contracts for the construction industry.
• Negative impacts on suppliers: the need to expand production to meet increased demand may
require investment to increase capacity.
Horizontal integration (takeover)
• Positive impacts on owners and shareholders: increased market share and higher profits; share
price increase due to increased market power.
• Negative impacts on owners and shareholders: cost of takeover, diverting profit from paying
dividends; risk of integration failing to achieve synergy.

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

• Positive impacts on suppliers: increased sales for favoured suppliers; greater security of demand
due to increased finances of integrated business.
• Negative impacts on suppliers: some suppliers may lose contracts; expectation of lower prices from
the customer.
Purchase of IT-controlled automated machines
• Positive impacts on owners and shareholders: increased efficiency and profit; improvements in
control of quality, resulting in greater customer satisfaction and therefore profits.
• Negative impacts on owners and shareholders: risk of IT failure impacting output.
• Positive impacts on suppliers: demand for automated machinery; maintenance contracts and
demand for replacement parts.
• Negative impacts on suppliers: reduced demand for worker safety equipment.
2 Learners’ own answers.

Activity 5.2
1 Learners’ answers might include:
• Inadequate working conditions. Not giving sufficient protection to the health and safety
of workers.
• No job security. Workers are employed on temporary rather than permanent contracts.
• ‘Unfair’ wages. Exploiting the availability of East European workers to drive down wages.
2 There may be a shortage of skilled workers in the future if East European workers decide to return to
Eastern Europe. This will affect the ability of businesses to fulfil contracts.
Younger workers will not be attracted into the industry due to low wages and lack of opportunities for
training, as businesses prefer the cheaper short-term option of employing East European workers.
Negative publicity resulting from accidents and injuries will also discourage new workers from entering
the industry.
Prosecution for not meeting the legal obligations will damage profits.
Evaluation could include an assessment of whether the impact on businesses will be different in the
short and long run; whether the rate of unemployment is high or not as this will affect the ability of
the companies to recruit replacement workers; whether the government insists on high standards of
workers’ welfare from construction companies building government projects.

Activity 5.3
1 Shareholders: long-term benefit due to improved image of the company. This can drive profits upwards
and lead to higher dividend payments.
Local communities: directly benefit from the financial support given by Shell. This will improve the
local environment and increase security of income for local farmers. The early learning centre funded
by Shell will increase the life chances of local children in South Africa.
2 The analysis of the short- and long-term effects on different stakeholder groups could include:
• Shell as a multinational oil and chemicals giant inevitably comes into conflict with local
communities and the environment. This generates bad publicity for the business, so local
community projects might be seen as a relatively cheap public relations exercise aimed at
generating more positive publicity for the company. Failure to promote a positive image may
lead to a loss of customers and greater difficulty in recruiting workers. Consumers in many
countries are concerned about the state of the environment so will expect Shell to take its social
responsibilities seriously.
• Within the communities that are supported, there will be a much more positive attitude towards
Shell and its products. So Shell is more likely to receive support if it needs to build factories in
those countries in which the Foundation is operating.
• The comprehensive set of codes, policies and processes that define how the company aims to
operate in socially and environmentally responsible ways will attract employees and customers.

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

• It may be essential for the future survival of the company, as Shell operates in a competitive
market and competitors such as BP and Exxon have similar charitable foundations. Without
accepting its responsibilities, Shell will lose customers to other businesses.
• In evaluation, it may be argued that accepting corporate social responsibility makes good business
sense in the long run to shareholders and ultimately it enables the smooth operation of the
business and supports long-term profitability.

Activity 5.4
1 Local community and mining company: the environmental damage caused by the open-cast mining
would be substantial. The mining would spoil the landscape and cause the diversion of a river and the
destruction of a forest. It would impact on those who depend on the forest for making a living. There
would also be the disruption to the thousands of people whose homes would have to be relocated.
The mining company could make substantial profits from the project. The 570 million tonnes of coal
available would have given security of future revenues to the mining company.
Government: major investment would create jobs, increase demand in the economy and provide cheap
electricity to businesses.
Conservation groups would be concerned about the destruction of the mangrove forest, a World
Heritage site.
2 The government would have to balance the significant economic benefits of extracting the coal against the
environmental and societal impact of mining activities. Although employment would be created, benefiting
many workers, and the investment would raise Bangladesh’s GDP, the level of disruption to the local
community and damage to the environment eventually persuaded the government to cancel the project.
The government must have decided that the negative long-term impact outweighed the short-term boost to
the economy. It is also possible that international pressure played a significant role in ending the project.

Activity 5.5
1 Suppliers of palm oil: supply product in a sustainable manner, with respect for the environment.
Customers: demand for products containing palm oil, paying a high enough price to encourage
responsible actions by suppliers.
2 Suppliers: less demand, fall in profits, less likely to behave responsibly.
Customers: less choice, will have to pay higher price or buy from less ethical suppliers.
3 Learners’ answers might include:
• Government regulation to ensure that production is more sustainable.
• Publicity about the impact of palm oil to educate consumers so that they are prepared to pay
higher prices for products made with sustainable palm oil.
• Stronger protection of the property rights of native populations to prevent exploitation.
• Establish a code of ethics so that socially responsible businesses are not undercut by those with
lower standards.
• Evaluation could consider an assessment of the measures most likely to reduce conflict between
the important stakeholders affected by this decision.

Exam-style questions
Short answer questions
1 Responsibility to just shareholders (shareholder concept) or to a wide range of stakeholders
(stakeholder concept).
2 Learners’ answers will vary, e.g. higher cost of meeting stakeholder aims: ethically sourced raw
materials to meet aims of some consumers; higher wage costs to meet employees’ aims; disposing of
waste cleanly to meet pressure-group aims.

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

3 Better reputation for acting responsibly towards stakeholders. This could become a USP and attract
good publicity. Higher sales could lead to higher profit.
4 Acting legally is acting within the law, an obligation; acting in a socially responsible way goes beyond
legal requirements to look after the interests of society and wider stakeholders.
5 A business cannot meet everyone’s needs, e.g. a higher but fair price paid to suppliers versus
shareholder returns.
6 Internal stakeholders: individuals or groups who work within the business or own it and are affected
by the operations of the business.
External stakeholders: individuals or groups who are separate from the business but are affected by or
interested in its operations.
7 Learners’ answers will vary, e.g. society: to reduce the risk of environmental disasters caused by cost-
cutting or lack of safety equipment, e.g. on an oil rig.
8 A retailer has a responsibility to customers to sell goods that are safe to use, with clear instructions on
contents and the method of operation.
9 Learners’ answers will vary, e.g. a decision to close down a loss-making factory will benefit
shareholders as the reduction in costs from not operating the factory will result in higher profit.
However, employees will be made redundant and they will lose job security and incomes.
10 The business could discuss with workers and trade unions ways to operate the factory more efficiently
so that costs are reduced to allow operations to either reduce losses substantially or make a profit.

Essay questions
1 a Teachers: role is to teach students; rights are to be paid fairly for the work they undertake
and to have safe working conditions; responsibilities are to prepare lessons thoroughly and to
teach effectively.
Government/local government: role is to provide the finance and other resources required by the
school; rights are to expect the school to meet government guidelines and minimum standards;
responsibility is to create a society in which education is valued.
b Learners should define external stakeholders and give examples. Answers are likely to focus
on potential clashes between internal and external stakeholders or between groups of
external stakeholders.
Responsibilities to shareholders: managers of companies have a primary responsibility to
shareholders who are the owners of the business. It could therefore be argued that:
• Decisions should focus on increasing shareholder value. This is achieved through increasing profit.
Social responsibility should take second place and, where there is conflict with the objective of
profit, ignored. By spending money on corporate social responsibility projects, businesses have less
to invest in expansion and less to pay out to owners, who took the risk to invest.
• To increase profit, managers have to reduce costs and increase revenue. To achieve this goal,
there will often be a conflict with social responsibility, e.g.:
• making employees redundant to reduce costs
Responsibilities to other external stakeholders: this view argues that companies have a duty to
consider wider society when making decisions (i.e. to take account of the impact of decisions on
other stakeholders). However, it may be argued that in many cases social responsibility and the
interests of shareholders are not incompatible. There are many benefits to acting in a socially
responsible manner:
• Recruitment and retention of employees. Employers will find it easier to recruit good-quality
staff and retain them.
• It is commercially beneficial to make operations more socially responsible. A reputation for
social responsibility will lead to an increase in sales and profits.
• Improve stock market valuation. An improved reputation will enhance the value of a business
on the stock market.

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

Evaluation: It seems that meeting responsibilities to all external stakeholders is expensive and
might reduce profits in the short run. However, over a longer period of time, the marketing,
public relations and employee motivation benefits of trying to fulfil responsibilities to all external
stakeholders might generate higher profits.
2 a Employees
• Checkout employees are typically low paid. The supermarket has a responsibility to pay at
least the minimum wage (if one exists) or a living wage.
• Provide protective clothing for employees (e.g. warm clothing for filling freezers).
• Flexible working hours. Many employees wish to balance working with childcare.
Local community
• Consideration of delivery times. Lorries add to congestion on the roads and have an impact
on local residents.
• Provide employment to the local community.
• Support for local community projects and groups.
b Internal stakeholders, including employees, managers and shareholders, are likely to be in favour of a
decision to open a large new supermarket as it meets the objectives of jobs, promotion opportunities
and profits. However, some within the local community may oppose the new supermarket due to
concerns about the impact on the local environment, road congestion and small local businesses.
• The supermarket may engage in public relations activity to improve its image and thus reduce
the likelihood of conflict (e.g. sponsor local schools or sports teams to generate positive local
publicity and gain support).
• It could offer to pay for local infrastructure improvements (e.g. children’s play parks) as part
of the development.
• It could consult relevant stakeholders who will be affected by decisions, explain why certain
decisions need to be taken and highlight the benefits to key stakeholders.
• The supermarket could develop ethical codes of practice and embrace the concept of corporate
social responsibility (CSR). If a supermarket is recognised as taking its social responsibilities
seriously, it is likely to reduce conflicts with external stakeholders such as interest groups and
the local community. Although there is a cost to CSR, this may be outweighed by the benefits in
terms of sales and labour turnover.
• Social audits can form part of CSR and indicate that a business has genuine commitment to
its responsibilities.
Evaluation may comment on the relative costs and benefits of different strategies to reduce
conflicts or recognise that the approach taken will depend on the potential conflicts likely to arise
from the specific decision.

Data response questions

1 Airline merger
a i Managers.
ii Being answerable to stakeholders for a business’s activities and decisions.
b The threat of industrial action could lead to higher redundancy payments.
Government may act to prevent the merger from being completed to protect towns that are
threatened with losing routes.
c There is a conflict between stakeholder objectives. For example, shareholders are interested in
profit and growth as this increases shareholder value and potential dividend payments. However,
driving down costs to increase profit will conflict with the objectives of other stakeholders such as
employees. In this case, there will be job losses and communities may suffer from the loss of routes.
Therefore, some customers will also lose out due to the reduced level of service. But, to offer lower
prices on the more popular routes, it is necessary to cut unprofitable routes.

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

The key issue for Special Air and Flights4U centres on its relationship with employees. The job
losses from closing Special Air’s headquarters and some regional routes appear likely to result in
industrial action. Any industrial action is costly in terms of lost revenues if flights cannot operate.
Further, the merged airline may have to pay compensation to stranded customers. However, if
industrial action is prolonged then the airline stands to lose customers to competitors and will
have a tarnished public image. The loss of long-term custom will reduce revenues; therefore, the
merger may turn out not to be as profitable as expected.
d Learners’ answers might include:
• Consult with trade unions over proposed job cuts and how they are implemented. Voluntary
redundancy, where possible, may lessen the likelihood of industrial action. Consultation and
negotiation with unions costs little and will avoid strike action. However, whilst negotiating,
the proposed changes may be delayed, which does cost the business money.
• Offer a generous redundancy package to employees. Although expensive, the annual savings of
$10 million will, in the long term, recoup any payments made.
• Wind down operations on regional routes gradually to allow communities and suppliers time
to make adjustments. This will delay cost savings but will reduce bad publicity.
• Provide support to redundant workers (e.g. help with finding new work or accessing training).
• Evaluation could include an assessment of the measures that are most likely to reduce conflicts
resulting from the merger.
2 Honda
a i Government.
ii Where the goals and interests of different stakeholders are not compatible.
b Learners’ answers will vary, e.g. shareholders have a responsibility to ensure that employees are
treated fairly. This could mean that employees are consulted about the closure, receive generous
redundancy pay and are given support to find new jobs.
Shareholders have the right to protect their investment, in this case resulting in the right to move
production to Japan and focus on electric vehicle production.
c Different stakeholder groups have different interests and aims. Therefore, Honda’s decision will
affect some groups positively and others negatively. Learners’ answers will vary, e.g.:
• Employees in Britain will lose their jobs and therefore their income. This will reduce their
living standards.
• Shareholders may benefit from the long-term survival of Honda and could see an increase in
share price and dividends in the future.
• Suppliers of batteries to Honda will see an increase in sales and profit in the future.
• The British government’s economic objectives will be negatively impacted by Honda’s decision.
There will be an increase in unemployment in Britain, reduced exports and lower economic growth.
d Yes: Honda could have discussed with employees and trade unions how to make the factory more
productive to reduce costs; asked for government support or subsidy; offered workers jobs in other
Honda factories; paid higher redundancy payments.
No: Honda aims to make a profit, so loss-making factories must be closed; changes in technology
often involve big impacts on different stakeholder groups, both positive and negative.
Overall evaluation and judgement are needed. Learners’ conclusions will vary, e.g. Honda
operates in a competitive market and would not survive if it did not respond to changing market
conditions. Therefore, Honda has to change objectives and target the electric vehicle market.

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