Unit 1 Answers

Answers to 1 Introduction to business management
Answers are given below to the student workpoints, toolkits and practice questions in the book. Answers are
not exhaustive but give guidance to students on the key points to cover.
1.1 WHAT IS A BUSINESS?

Student workpoint 1.1 (p7)
Primary Secondary Tertiary
Cherry pie Cherries Cherry filling Pastry shop
Bakery
Skateboard Extraction of raw materials Manufacturers of parts Sports retail shop
that go into a skateboard Manufacturer of skateboards
Smartphone Extraction of raw materials Manufacturer of parts Retail shop selling phones
that go into a smartphone Manufacturer of smartphone
Quaternary sector businesses might not necessarily be involved with any of these products, unless they
were built on such a scale that knowledge of major trends in national and global supply was necessary,
or opportunities existed to rely on artificial intelligence or big data. In that case, specialists in information
technology might be employed or a business might engage a consultancy firm that could produce relevant
and highly specialized information.

At a basic level, a business plan includes the following components:
➔ An outline of the business idea
➔ Marketing strategies
➔ A management and human resources plan
➔ Financial information (including your initial capital and forecasts for the future, such as cash flow
projections for the next three years)
© Oxford University Press 2022

1
IB Business Management Answers: 1 Introduction to business management

Challenges and opportunities could include:
Challenges Opportunities
Is this the right idea now? We know about gaps in the local market.
We can start small, as a sole trader or partnership, and keep our
How should the business be legally organized?
organizational costs low.
Most of these businesses will require minimal staff, at least at
Who will work for us?
first. We have the skills.
With low costs, we may be able to start with personal savings or
How will we finance this business?
a loan from family members.
What are the best processes for making the product or delivering Because our scale will be small at first, we will have lots
the service? of flexibility.

Three microfinance borrowers should be identified. Often, a business might be as simple as borrowing money
to buy farm animals, from which a family can get eggs or milk to sell at the local market. As with any lending
situation, the probability of repayment is highest when the borrower has a clear idea of how they will pay
back the loan (for example by selling produce at the local market) and the business has a feasible plan.
Practice question (p13)

a) Human resources are the people that work in a business. Human resources are also the skills and
knowledge that those people have and which make them suitable to work in a particular business.
One advantage of the business arrangement for Starbucks is that Tata Coffee already has employees
trained and knowledgeable in this industry. Another advantage for Starbucks is that Tata Coffee already
has in place the physical resources, from coffee farms to coffee shops, which Starbucks can leverage to
its global brand.
Another type of resource is financial resources: the ability to generate funds internally or to raise
finance externally (either debt or equity). While Tata is a major company in India with ample resources
of its own, the two companies combined have the ability to raise ample finance to grow their new
venture together.
Mark as [2+2]. Award [1] for demonstrating an understanding of each of the three terms: human,
physical, and financial resources, up to [2]. Award an additional [1] each for adequate explanation
and application to the stimulus, up to [2]. Maximum award: [4].

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1.2 TYPES OF BUSINESS ENTITIES

Common similarities between NGOs are:
➔ They are non-profit or not-for-profit.
➔ They are formed voluntarily and often at least some of their staff are volunteers.
➔ They have a social purpose, such as Mercy Ships (bringing medical care to regions where it is very
limited) or War Child (supporting and protecting children affected by war).
➔ They often seek government support to provide at least part of their finance.
Common differences include:
➔ The type of social issue they address.
➔ Their scale (local versus global).
➔ Their resources.

a) Public sector firms are those that are owned and/or controlled by the government. Private sector firms
are not owned by the government; they are owned by investors.
In the stimulus to the practice question, O2S is a private sector company that, for most of its life, has
sold only to other private sector companies. However, because of increasing competition from internet
providers selling office supplies, O2S has had to look for other customers. It has decided to try to sell to
public sector organizations, like state schools, which probably have a different procurement process
than private sector companies.
Mark as [2+2]. Award [1] each for a clear understanding of what the private sector is and what
the public sector is, up to [2]. Award an additional [1] each for application to the stimulus and
explanation, up to [2]. Maximum award: [4].

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1.3 BUSINESS OBJECTIVES

Accept any relevant response. For example: Both statements are grand and ambitious. Amazon’s is more
focused in on itself, which perhaps makes sense given that Amazon is a for-profit corporation and Oxfam is
a charity. Both statements succinctly convey the highest aspirations of the organizations: ending injustice
and poverty for Oxfam, and creating an online marketplace that sells anything for Amazon.

Students’ vision statements should state their long-term aspirations for themselves. Their mission
statements should speak more directly to how they will get on the path to achieving their long-term vision.
Vision statement example:
My ultimate career goal is to [action verb] in [where]. I have always wanted to [state what you have
always wanted].
For example:
My ultimate career goal is to teach underprivileged children in poor, rural districts of my home country.
I have always wanted to help those less fortunate than me, and teaching seems like one of the most
rewarding ways that I can reach this goal.
Mission statement example:
Over the next [time period], I will [state concrete steps], always doing so with [state attitudes or
dispositions].
For example:
Over the next five to seven years, I will pursue my education objectives so that I am professionally qualified
to teach and skilled at teaching. I will pursue these aims with compassion, humour, and flexibility to make
myself a likeable, caring teacher capable of giving more than I ask in return.

Ethical objectives could include, for example:
➔ Promoting a culture that eliminates sexual harassment in the workplace.
➔ Promoting diversity in the workplace.
➔ Having fair policies with respect to employee privacy, including their use of social media.
➔ Ensuring a healthy and safe workplace.
➔ Striving always to be environmentally responsible.

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Chapter 1.3 has two broad themes. The first is tactical and strategic objectives, and the second is corporate
social responsibility. The article by Berkowitz reveals that the crises of 2020 are causing companies to (1)
rethink what their tactical and strategic objectives should be, and (2) realize that those objectives should
include a broader and deeper consideration of corporate social responsibility.
In the United States, the Covid-19 pandemic revealed numerous disparities in American life between whites
and most racial minorities – unequal access to well-paid jobs, unequal access to adequate healthcare,
and unequal access to emergency resources and services during times of crisis, like the pandemic. Many
American businesses are responding with shifts at the highest levels (corporate objectives) but also
throughout their organizations, with such things as department-level CSR plans.
More and more organizations have responded to the exposure of systemic racism by trying to uncover
racism within their own organizations. One way to determine the degree to which organizations have racism
within their business is by asking employees what they think, and what they experience and observe.
In general, as Berkowitz argues, one reason that companies are making CSR more pervasive in organizations
is because employees are demanding it. She writes, “Employees are demanding corporations lead with
purpose and corporate executives are responding.”

a) Features could include:
➔ A limited number of shareholders
➔ Owners’ liability is limited
➔ Restrictions exist on share transferability
➔ Legal continuity (if an owner dies the business continues to a maximum of exist)
➔ Legally distinct from the owners
Accept any other relevant features.
Award [1] for each feature stated up to a maximum of [2].
b) Route 11 Chips practises CSR in two ways mentioned in the stimulus:
➔ Green operations: it uses 100% renewable energy to run its premises
➔ It gives to charity: each month it supports a different charity
Mark as [2+2]. Award [1] for each way stated, up to [2]. Award [1] each for explanation and
application, up to [2]. Maximum award: [4].
c) Challenges the business faced include:
➔ No experience in food manufacturing
➔ No marketing strategy
➔ No distribution network

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Opportunities the business faced include:

➔ Some (limited) recognition of the name Tabard
➔ The chance opportunity that the farmer with surplus potatoes and the owners of the Tabard Inn could
collaborate to make chips
➔ The opportunity to purchase the equipment of a failing chip maker
Accept any other relevant challenge or opportunity.
Mark as [2+2]. Award [1] for one challenge stated and [1] for one opportunity stated. Award an additional
[1] each for explanation and application. Maximum award: [4].

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1.4 STAKEHOLDERS
Students might agree that management should focus solely on making profits and increasing shareholder
value for several reasons. They might have in mind a business that cannot afford to devote some of its
resources (time, effort, money) to less important stakeholders. They might think that a business’s purpose
is to make money and it should not lose focus on that aim.
On the other hand, students might think that communicating with stakeholders and considering their
interests is good for a business in the long run. They could argue that if businesses treat their stakeholders
openly and fairly they will, in the long run, be more profitable than if they narrowly focus on profits and
shareholder value.

a) An internal stakeholder is the management of Ecosoluciones. External stakeholders in the case
study include:
➔ The community of Alumbre, Peru
➔ Peru Telecom
➔ The Peruvian government
➔ The Spanish government
Award [1] for the internal stakeholder, if properly identified, and [1] mark for each external stakeholder
identified, up to [3]. Maximum award: [4].
b) Possible areas of conflict include:
➔ Continuity of service – whereas Ecosoluciones could rationally justify its withdrawal from the
Alumbre Project, the textile factory made capital outlays to purchase new equipment with some
expectation that reliable electric power would be available.
➔ Funding from the Spanish government – the Spanish government’s withdrawal of funding could have
caused conflict between the Spanish government and any of the other stakeholders, such as Peru
Telecom, the Peruvian government, or the local government of Alumbre.
➔ The role of Peruvian government – between the Peruvian government and stakeholders such as Peru
Telecom, the local government of Alumbre, or regional trading partners, all of which might reasonably
step in when the Spanish government withdrew. Some conflict would probably arise over the
question of who would step in, how they would step in, and who would fund them.
Accept any other relevant area of conflict. Marks should be allocated according to the following
level descriptors:

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Marks Level descriptor

0 The work does not reach a standard described by the descriptor.
1–2 • Little understanding of the demands of the question.
• Little use of business management tools and theories; any tools and theories that are used are irrelevant or
used inaccurately.
• Little or no reference to the stimulus material.
• No arguments are made.
3–4 • Some understanding of the demands of the question.
• Some use of business management tools and theories, but these are mostly lacking in accuracy and relevance.
• Superficial use of information from the stimulus material, often not going beyond the name of the person(s) or
name of the organization.
• Any arguments made are mostly unsubstantiated.
5–6 • The response indicates an understanding of the demands of the question, but these demands are only
partially addressed.
• Some relevant and accurate use of business management tools and theories.
• Some relevant use of information from the stimulus material that goes beyond the name of the person(s) or
name of the organization but does not effectively support the argument.
• Arguments are substantiated but are mostly one-sided.
7–8 • Mostly addresses the demands of the question.
• Mostly relevant and accurate use of business management tools and theories.
• Information from the stimulus material is generally used to support the argument, although there is some lack
of clarity or relevance in some places.
• Arguments are substantiated and have some balance.
9–10 • Clear focus on addressing the demands of the question.
• Relevant and accurate use of business management tools and theories.
• Relevant information from the stimulus material is integrated effectively to support the argument.
• Arguments are substantiated and balanced, with an explanation of the limitations of the case study or
stimulus material.

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1.5 GROWTH AND EVOLUTION

Toolkit: STEEPLE analysis (p61)
When researching these factors, what types of information might you gather?
Research into the following areas might be considered when undertaking a STEEPLE analysis:
Sociocultural:
➔ Cultural evaluation based on Hofstede
➔ Human Development Index ranking
➔ Languages
➔ Population size and significant demographic trends, such as aging, migration, urbanization
➔ Religion
➔ Shopping behaviour and lifestyle
Technological:
➔ Availability of skilled employees
➔ Availability of technology needed for the company
➔ Infrastructure issues: roads, airports, transportation, electricity, broadband, etc
➔ University or other educational support
Economic:
➔ Business or economic cycles
➔ Inflation rate
➔ Size, growth, and direction of the economy (Gross National Income per capita, GDP ranking,
GDP growth rate)
➔ Some indicators of income inequality, such as the GINI Index produced by the World Bank
➔ Unemployment rate
Environmental:
➔ Allowable levels of greenhouse gas emissions
➔ Availability of necessary resources
➔ Geographic issues or considerations
➔ Public and government attitudes towards environmental issues
Political:
➔ A global corruption index, a human rights index, and a political stability/instability index
➔ Potential changes in the political landscape (an upcoming election, for example)
➔ The type of government
➔ History of political stability

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Legal:
➔ IP protection
➔ Regulations, such as environmental, workplace safety, or worker safety and benefits
➔ Taxation
Ethical:
➔ Morality of people in the market
➔ Duties: expectations of proper roles and decorum
➔ Ethical standards
The above list is not exhaustive, but it provides some guidance on the types of information that might go into
a STEEPLE analysis.
Toolkit: Decision trees (p68)

In this scenario, which option should the manager choose?
Based on the decision tree and cost of outcomes, Site A would have an expected value of $21m, Site B $1m,
and Site C $16m. Therefore, the best option would be Site A.
The business can identify these expected values using the following formula:
Expected value nodex = (probability×1 × return×1) + (probability×2 × return×2)
So in this case the calculations are as follows:
EV2 = (0.4 × 60) + (0.6 × 20) = 36
EV3 = (0.7 × 30) + (0.3 × 10) = 24
EV4 = (0.6 × 40) + (0.4 × 30) = 36
The decision would normally be the outcome that gives the highest EV. However, in this case, the business
must include the costs incurred by building the factories. The cost is subtracted from the EV for each choice.
This process then indicates the best choice: the EV with highest value:
EV2 – costA = 36 – 15 = $21m
EV3 – costB = 24 – 25 = $1m
EV4 – costC = 36 – 20 = $16m

a) Features of an acquisition include:
➔ One company acquires or buys over 50% of the shares of another company.
➔ The two companies, the acquiror and the acquired, believe that some common benefit will be
derived by combining (eg increased market share, complementary business cycles, synergies).
➔ An aim is to enjoy some economies of scale.
Accept any other relevant answer. Award [1] for each feature stated up to a maximum of [2].

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b) Economy of scale refers to the decrease in per unit production cost as output or activity increases,
while diseconomy of scale refers to the increase in per unit production cost as output or activity
increases.
One economy of scale that SI began to experience was the negotiating of more favourable purchase
prices from suppliers. When the two companies combined, SI had more influence and the purchase
orders were larger. Suppliers were more willing to offer lower prices.
A diseconomy of scale that SI experienced was that communication problems began to arise. As the
organization grew in complexity, the “costs” stemming from managing that also rose.
Mark as [2+2]. Award [1] each for an understanding of economy and diseconomy of scale, up to [2].
Award an additional [1] each for explanation and application to the stimulus, up to [2]. Maximum
award: [4].
c) One reason why SI grew is that it acquired another company in the same industry, a form of external
growth. The motivation for the growth was that SI hoped to enjoy some obvious benefits, such as
increased name recognition, rapidly growing sales, and economies of scale. The company probably
hoped its profits would increase as well.
One reason that perhaps SI should have stayed small is that small businesses can often maintain
greater control and have personal relationships with customers. As sales and production grew, delivery
times increased and many customers thought the service was too impersonal. To the degree that short
delivery times and personal service contributed to SI’s value proposition, growth worked against it.
Accept any other relevant answer.
Mark as [2+2]. Award [1] for one reason why SI grew and [1] for one reason why it perhaps should
have remained small. Award an additional [1] each for explanation and application, up to [2].
Maximum award: [4].

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1.6 MULTINATIONAL COMPANIES (MNCs)

a) The impact of the American company on South Africa was significant. The American company brought
many new jobs – 150 – that were well paid and had fringe benefits. The American company was also
able to deliver something to the market that people wanted: African-style pottery at fairly low prices.
It could be said that a technology transfer took place. The American company brought some new
technologies to make pottery that South African workers could learn. Perhaps later those South African
workers could use their enhanced technology skills and knowledge in South African-owned companies.
The arrival of the American company appears to have signalled the end of KP, which saw its sales
decline almost immediately when the American company arrived. Other small pottery companies may
have been affected as well. These small businesses were owned by South Africans, who enjoyed all of
the profits.
The death of small businesses like KP constitute more than just a loss of locally owned businesses. It
also means the erosion, and possibly the end, of a traditional craft. Traditional crafts are one of many
elements of a local culture, which could well be transformed by the presence of large multinational
companies.
Finally, many would say that this kind of expansion of Western and foreign companies into places like
Africa is a form of neo-imperialism. Neo-imperialism is not the kind of military conquest and takeover
that the West engaged in during the final two decades of the 19th century. It is more subversive,
because it does not involve military conquest. It is just as damaging in terms of denying locals, in this
case South Africans, some control over their economic lives.
Marks should be allocated according to the following level descriptors:

0 The work does not reach a standard described by the descriptor.
1–2 • Little understanding of the demands of the question.
• Little use of business management tools and theories; any tools and theories that are used are irrelevant or
used inaccurately.
• Little or no reference to the stimulus material.
• No arguments are made.
3–4 • Some understanding of the demands of the question.
• Some use of business management tools and theories, but these are mostly lacking in accuracy and
relevance.
• Superficial use of information from the stimulus material, often not going beyond the name of the person(s) or
name of the organization.
• Any arguments made are mostly unsubstantiated.

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5–6 • The response indicates an understanding of the demands of the question, but these demands are only
partially addressed.
• Some relevant and accurate use of business management tools and theories.
• Some relevant use of information from the stimulus material that goes beyond the name of the person(s) or
name of the organization but does not effectively support the argument.
• Arguments are substantiated but are mostly one-sided.
7–8 • Mostly addresses the demands of the question.
• Mostly relevant and accurate use of business management tools and theories.
• Information from the stimulus material is generally used to support the argument, although there is some lack
of clarity or relevance in some places.
• Arguments are substantiated and have some balance.
9–10 • Clear focus on addressing the demands of the question.
• Relevant and accurate use of business management tools and theories.
• Relevant information from the stimulus material is integrated effectively to support the argument.
• Arguments are substantiated and balanced, with an explanation of the limitations of the case study or
stimulus material.

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Unit 1 Answers

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Unit 1 Answers

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Answers to 1 Introduction to business management

1.1 WHAT IS A BUSINESS?

Student workpoint 1.2 (p10)

© Oxford University Press 2022

Student workpoint 1.3 (p11)

Student workpoint 1.4 (p12)

Practice question (p13)

© Oxford University Press 2022

1.2 TYPES OF BUSINESS ENTITIES

Practice question (p33)

© Oxford University Press 2022

1.3 BUSINESS OBJECTIVES

Student workpoint 1.7 (p36)

Student workpoint 1.8 (p43)

© Oxford University Press 2022

Student workpoint 1.9 (p45)

Practice question (p51)

© Oxford University Press 2022

Opportunities the business faced include:

© Oxford University Press 2022

Practice question (p58)

© Oxford University Press 2022

Marks Level descriptor

© Oxford University Press 2022

1.5 GROWTH AND EVOLUTION

© Oxford University Press 2022

Toolkit: Decision trees (p68)

Practice question (p75)

© Oxford University Press 2022

© Oxford University Press 2022

1.6 MULTINATIONAL COMPANIES (MNCs)

Marks Level descriptor

© Oxford University Press 2022

Marks Level descriptor

© Oxford University Press 2022

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