CHAPTER 1.

ENTERPRISE - EXAM-STYLE QUESTIONS

Short Answer Questions

1. Define the term ‘adding value’. (2 marks)

Selling goods and services for a higher price than the cost of bought-in materials.

2. Define the term ‘entrepreneur’. (2 marks)

An entrepreneur is an individual who identifies a business opportunity, takes the initiative to

organise resources, and assumes financial risk in order to set up and run a business.

3. Analyse one characteristic of successful entrepreneurs. (5 marks)

A key characteristic is initiative. Entrepreneurs must be proactive in identifying gaps in the

market. For example, a tech entrepreneur in Vietnam might spot an opportunity in online
education and develop an app for remote learning. This initiative can lead to first-mover
advantage and higher market share, contributing to long-term success.

4. Explain one barrier faced by entrepreneurs, apart from limited finance. (3 marks)

One barrier is the high cost of good locations. For example, a new café may struggle to afford
rent in a busy city centre where customer footfall is high. This can limit sales opportunities and
increase fixed costs, making it harder for the business to become profitable.

5. Explain one example of opportunity cost for an individual planning to become an

entrepreneur. (3 marks)

If an individual gives up a salaried job paying $2,000/month to start a business, the lost income
represents the opportunity cost — the benefit sacrificed by choosing entrepreneurship over stable
employment.

6. Analyse one way a country is likely to benefit from the expansion of its business
enterprises. (5 marks)

A country can benefit through job creation. As more businesses are established, employment
opportunities increase. For example, Vietnam’s growing tech start-up sector provides jobs in
software, marketing, and logistics. This reduces unemployment and increases household income,
contributing to economic growth via higher consumer spending and tax revenue.

7. Explain one role of an intrapreneur in an existing business. (3 marks)

An intrapreneur develops innovative ideas within a business. For instance, an employee at a car
manufacturer may design a new electric vehicle model, driving innovation without taking
personal financial risk.

8. Analyse one benefit of a detailed business plan to an entrepreneur. (5 marks)

A business plan provides strategic direction by outlining objectives, market research, and
financial forecasts. This can help secure external finance. For example, banks are more likely to
lend if they see a clear, realistic revenue projection, reducing financial risk for the entrepreneur.

9. Explain one limitation of business plans. (3 marks)

Business plans are often based on assumptions that may not reflect market realities. If customer
behaviour or economic conditions change, the plan may become outdated and lead to poor
decisions.

10. Explain one reason why a new hairdressing business will need a factor of production of
your choice. (3 marks)

The business will need labour, as skilled hairdressers are essential for delivering the service.
Without trained staff, the business cannot meet customer expectations or generate revenue.

11. Explain one need that a new business must fulfil if it is to be successful. (3 marks)

A new business must fulfil the need for effective marketing to attract customers. For instance, a
new clothing store in a competitive area must advertise well and build brand awareness to stand
out and generate sales.

12. Analyse one way a supermarket could add value to the food and other goods it buys in.
(5 marks)

A supermarket can add value by branding its own-label products. For example, by offering
organic or premium ranges under its own name, it differentiates from competitors and justifies
higher prices, improving profit margins.

13. Explain one reason why there are so many new business enterprises providing
consumer services. (3 marks)

There is increasing consumer demand for personalised and convenience-based services. As

incomes rise, especially in urban areas, people are willing to pay for things like home cleaning,
personal training, or tutoring.
14. Explain one way in which an entrepreneur could overcome the barrier of having no
savings to invest. (3 marks)

They could seek angel investment, where private investors provide capital in exchange for
equity. This gives the entrepreneur access to funds and possibly business expertise without
needing personal savings.

15. Analyse one benefit of entrepreneurship to your country’s economy. (5 marks)

Entrepreneurship can drive innovation, which boosts productivity and competitiveness. In

Vietnam, start-ups in the fintech sector — like MoMo — have introduced cashless payment
systems, supporting digital transformation and attracting FDI, both of which are vital for long-
term economic growth.

Essay Questions

1a

Analyse two ways a bakery could increase added value. (8 marks)

One way is by using high-quality ingredients. A bakery that uses organic flour or locally
sourced fruits can charge premium prices, as customers perceive the products as healthier or
more exclusive. This increases the gap between production cost and selling price, which is added
value.

Another way is through branding and customer experience. If the bakery creates a unique
brand identity with attractive packaging and a cosy in-store atmosphere, it enhances the product's
appeal. For example, a Vietnamese bakery offering traditional pastries with modern presentation
can attract tourists and locals, increasing brand loyalty and perceived value.

In conclusion, using quality ingredients and strong branding are effective ways to increase
added value, helping the bakery boost profits and compete better.

1b

Evaluate whether the success of an entrepreneur depends more on luck rather than
personal qualities and skills. (12 marks)

The success of an entrepreneur is influenced by many factors, including luck and personal
qualities such as skills, motivation, and experience. While luck can provide unexpected
opportunities, personal qualities are essential for long-term success.
Luck can create favorable circumstances, such as meeting the right investors, timing the market
well, or avoiding unexpected problems. For example, an entrepreneur might launch a product
just as consumer demand suddenly increases due to a new trend, giving them a huge advantage.
Luck can also mean avoiding external risks like economic downturns or regulatory changes that
could negatively impact a business.

Entrepreneurial success typically depends more on qualities such as resilience, innovation,

leadership, and decision-making. These skills help entrepreneurs to recognise opportunities,
overcome challenges, and adapt to changing environments. For instance, a determined
entrepreneur will persist despite failures and learn from mistakes, which increases the likelihood
of eventual success.

Personal qualities and skills can increase the chances of “good luck.” For example, networking
skills can lead to meeting influential people, which might seem like luck but is actually the result
of proactive behavior. Also, entrepreneurs with good financial skills can better manage risks,
turning potential bad luck into manageable setbacks.

Some might argue that luck is unpredictable and outside anyone’s control, so it plays the largest
role. However, focusing too much on luck ignores the hard work and strategic planning
entrepreneurs invest. Most successful entrepreneurs report that skill and perseverance, rather
than luck alone, determine their outcomes.

While luck can influence the timing and initial opportunities for entrepreneurial success,
personal qualities and skills are more critical for sustaining and growing a business. Luck may
open the door, but it is the entrepreneur’s abilities that decide whether they walk through it
successfully.

2a. Analyse two benefits to your country’s economy of an increase in the number of new
business start-ups by entrepreneurs. (8 marks)

One benefit to Vietnam’s economy from an increase in start-ups is job creation, especially for
young people and rural workers. Vietnam has a young and growing workforce, but
underemployment remains an issue in some regions. As more entrepreneurs launch small and
medium-sized enterprises (SMEs), particularly in areas like food production, agriculture
technology, and tourism, they create local employment opportunities. For example, start-ups in
Đà Nẵng and Cần Thơ have helped reduce rural-to-urban migration by providing jobs in
logistics, software development, and handicrafts. This not only reduces unemployment but also
increases income levels, which boosts consumer spending and tax revenue for the government.

A second benefit is that start-ups promote innovation and global competitiveness, especially
in Vietnam's emerging tech sector. Cities like Ho Chi Minh City and Hanoi have become hubs
for start-ups in fintech, edtech, and e-commerce. Companies like MoMo (a digital wallet
platform) and Tiki (an e-commerce firm) are examples of successful Vietnamese start-ups that
improve consumer convenience, attract foreign investment, and reduce dependence on imports.
As more entrepreneurs enter these sectors, Vietnam strengthens its position as a regional tech
leader, increasing productivity and attracting international partnerships that contribute to GDP
growth.

2b.
One of the barriers that business entrepreneurs in Vietnam experience is obtaining sufficient
capital. While Vietnam has a young and growing workforce, many does not have the business
knowledge required to seek available grants from the government, which when combined with
limited personal savings at a young age makes the prospect of a start-up seem far-fetched.
Moreover, the bureaucracy involved in legal procedures to prove the need for financial support
from the government discourages young people. External help from investors call for a clear
business plan, which many does not have the knowledge and skills required to formulate.
Another barrier is the lack of a business opportunity. This calls for original ideas that probably
stem from the entrepreneur’s own skills or hobbies. As the Vietnamese education system
currently does not provide well-rounded development both academically and practically, and
instead a theoretical and static program, students are sometimes not encouraged to develop
hobbies that help with their future career paths. As business ventures call for innovation, this
limits learners’ potential in seeking business opportunities for their start-ups.
In addition, entrepreneurs in Vietnam nowadays are likely to meet with competition. As sources
of information and tertiary education nowadays have become much more accessible, keeping
ideas original is a real challenge. That means, many businesses would have the same initial idea,
and entrepreneurs have to work hard to constantly set their businesses apart. Otherwise, they
cannot find an established position to attract customers, threatening the survival of their
businesses as a whole.
Overall, entrepreneurs in Vietnam are likely to meet with insufficient finance, lack of business
opportunity, and competition. As tertiary education has become more common, and many
schools in my country have adapted a more holistic approach to learning, the education system is
now more open to students’ unique traits and hobbies, hence encouraging the business
opportunity from each youngster’s skills. High-level education also has allowed for developing
business paths that set a start-up apart of others, hence decreasing competition. However,
bureaucracy in seeking external finance remains an obstacle, since the private sector of the
economy, in which start-ups operate, does not receive enough encouragement for more grants to
be available to those aiming business ventures.

Entrepreneurs in Vietnam face several significant barriers, which impede their ability to
successfully start and sustain businesses. These barriers include limited access to finance, lack
of business opportunities, intense competition, and bureaucratic challenges. Each of these issues
presents unique challenges to new business ventures, and overcoming them requires targeted
policy interventions and reforms.

One of the most significant barriers for entrepreneurs in Vietnam is the difficulty in obtaining
capital. Despite having a young, growing population, many entrepreneurs struggle to access
loans or grants, particularly due to the lack of sufficient personal savings, which is common
among young people. Vietnamese banks are often risk-averse and prefer lending to established
businesses rather than start-ups. Furthermore, the bureaucratic hurdles involved in securing
government funding or grants are discouraging. Entrepreneurs are required to provide a
detailed business plan, but many lack the necessary skills and experience to create one that
satisfies the criteria. This creates a barrier that limits the potential for business expansion and
forces many start-ups to rely on informal lending sources, which can lead to high-interest rates
and debt cycles, further affecting their financial stability.

In addition to financial challenges, many Vietnamese entrepreneurs face a lack of viable

business opportunities. This is partly due to the country’s educational system, which focuses
more on theoretical knowledge and does not adequately prepare students with the practical
skills needed to innovate or run a business. The education system has not traditionally
encouraged students to develop entrepreneurial skills or think creatively. As a result, many
potential entrepreneurs lack the necessary expertise to identify emerging business opportunities
or to effectively develop innovative products or services. The educational system’s failure to
integrate entrepreneurship into its curriculum limits the country’s ability to produce a
significant number of creative and business-minded individuals who can launch successful start-
ups.

Another major barrier is the intense competition that entrepreneurs face in the marketplace. As
information and educational resources have become more accessible, it has become easier for
individuals to develop similar business ideas. This saturation of the market means that
entrepreneurs must find unique selling propositions to stand out. Without innovation, businesses
risk becoming indistinguishable from competitors, leading to a struggle for market share. For
example, in industries like e-commerce, many start-ups offer similar products and services,
making it difficult to secure customers and build a loyal client base. This competition often leads
to price wars, which can erode profit margins and reduce the sustainability of new businesses.

Finally, the bureaucratic nature of the business environment in Vietnam poses a significant
challenge. Government regulations, though improving, can still be cumbersome and time-
consuming. For instance, registering a business, obtaining permits, and dealing with tax laws
are often complex and bureaucratically managed processes. These administrative hurdles
increase the cost of doing business and can delay the start-up process. For many young
entrepreneurs, this discourages them from pursuing their business ideas or causes them to
abandon their ventures altogether.

In evaluating these barriers, access to finance and bureaucratic hurdles emerge as the most
critical challenges faced by entrepreneurs in Vietnam. Addressing these barriers would provide
entrepreneurs with the resources they need to succeed and streamline the processes necessary
for starting a business. Although the lack of business opportunities and increasing competition
are important, they are less significant in the immediate term compared to the financial and
regulatory constraints that limit entrepreneurial success. Tackling these issues should therefore
be a priority for the Vietnamese government to foster a more supportive entrepreneurial
ecosystem.

Data response Questions

1.
a.
i. One quality of successful intrapreneurs is the ability to generate innovative ideas.
ii. Opportunity costs are the next best alternatives involved in choosing. This concept exists for
all economic decision-makers: consumers, businesses and governments, as the need to choose
arise from the scarcity of resources and unlimited wants.
b. Rivelino’s success as an entrepreneur lies in his being a risk-taker. Not until he had embarked
on two business ventures, which are a herbal tea business and arranging boats for tourists did he
start up and make a success of TFS. Three different business ventures probably brought about
various obstacles, and as Rivelino admitted, he has risked his time and all his savings. It is his
willingness to take risks that fueled his desire to constantly look out for business opportunities.

Rivelino’s success is also determined by his leadership skills. He inspired his employees to
become intrapreneurs by possessing many qualities of an entrepreneur himself, such as
innovation. He is constantly looking for ways to develop his products, even after much success,
as evidenced by his enhancing customized software on a global scale and recognizing the
business opportunity in e-commerce.
One quality that made Rivelino successful was risk-taking. He invested his time and all his
savings into earlier ventures such as a herbal tea business and arranging boat tours. Although
these ventures were not long-term successes, they gave him experience in identifying
opportunities and built the foundation for creating TFS. His willingness to risk personal
resources enabled him to seize the chance to move into customised software, which became
highly profitable.

Another key quality was leadership and innovation. Rivelino encouraged his employees to act as
intrapreneurs, motivating them to develop their own ideas. He also demonstrated innovation
himself by enhancing customised software for global markets and spotting opportunities in e-
commerce. These qualities ensured that TFS remained competitive and expanded
internationally, which directly contributed to his success.

c. One of Rivelino’s friends had a marketing qualification, along side with numerous business
contacts, which made it easier for TFS to be kept posted on the market dynamics and formulate
sound strategies to attract customers. For example, the available business contacts could be a
source for finding suppliers for necessary equipment, including computers, with which
credibility and familiarity may bring about a discount, and the partner’s expertise in marketing
could help with targeting accounting departments of other businesses with payment systems
which automatically record transactions, so as to save time and labour. Hence, the contacts help
TFS decrease costs, while marketing strategies help with building customer loyalty, hence
leading to an established position in the global market.

Another partner brought financial skills, which play an essential goal in cash flow-related
problems because TFS is capital-intensive with only four full-time computer programmers. As
Rivelino has used all his savings, this helps him make the best use of that resources as debts
would have a detrimental effect on a partnership like TFS because of unlimited liability.

One of Rivelino’s friends had a marketing qualification and numerous business contacts. This
helped TFS to stay informed about market dynamics and to design effective strategies to attract
customers. For example, the partner’s business contacts could secure suppliers for essential
equipment, potentially at discounted rates due to credibility and trust, thereby reducing costs.
Moreover, his expertise in marketing enabled TFS to target other businesses with payment
systems that streamline transactions, saving time and labour. These skills and networks helped
TFS to lower expenses while simultaneously building customer loyalty and a stronger position in
the global market.

Another partner contributed financial skills, which were crucial in managing cash flow for TFS,
a business that required significant capital investment but employed only four full-time
programmers. Since Rivelino had used all his savings to launch the venture, the financial
expertise of this partner was vital in allocating resources effectively and ensuring funds were
available when needed. This reduced the risk of liquidity issues that could threaten survival,
particularly given the unlimited liability nature of the partnership. Hence, the partner’s financial
management skills supported the firm’s stability and growth.

d. A dynamic business environment is one in which internal and external factors are constantly
changing. While internal factors, including management style and employees, are controllable to
some extent, external ones like competition and legal changes are largely uncontrollable.
Changes in each of these factors may either benefit or put TFS at a disadvantage.

Changes in internal factors can help with efficiency, hence decrease costs and boost productivity,
which fosters organic growth. Improving workers’ motivation by offering financial rewards and
incentives, for example, can help a business avoid absenteeism to save time, costs (not having to
pay for those who do not work), and increase output. This enables sufficient products to cater to
customers’ need, potentially leading to increased sales, which results in increased market share.
However, changes may also have negative implications like resisted growth. Changing from
democratic to autocratic leadership style is likely to discourage innovation, as employees are not
allowed to share their ideas in decision-making. Without innovation, the business are exposed to
the risk of being edged out from the market, since their products soon become outdated and not
suitable to current tastes.

A dynamic business environment refers to an external environment that is constantly changing

due to factors such as technology, competition, consumer behaviour and regulation. For TFS,
this presents both opportunities and challenges.

On the one hand, growth in global e-commerce creates rising demand for secure payment
systems. If TFS continues to innovate, such as by developing customised software or AI-based
fraud prevention, it could attract more clients and expand internationally. In this sense, a
dynamic environment stimulates innovation, which suits TFS since Rivelino encourages
intrapreneurship and has a strong vision.

On the other hand, the fintech sector is highly competitive and dominated by global firms such
as PayPal and Stripe. These rivals have greater resources and brand recognition, which could
threaten TFS’s success. Furthermore, fintech businesses face rapidly changing regulations, such
as data protection and financial compliance, which could increase costs and slow down
international expansion.

In conclusion, the dynamic business environment is both an opportunity and a threat. The future
success of TFS depends on whether it can adapt quickly, exploit innovation, and secure
resources to compete globally. Overall, if TFS leverages its innovative culture, the impact is
likely to be positive, but failure to keep up with change could lead to decline.
2.

a.

i. One factor of production is land.

ii. Customers are individuals or businesses that buys goods and services from a business.

b. Wesley now faces a cash-flow problem. He has not kept his accounting records up-to-date in
three weeks, leading to unpaid consumer credits. This leads to shortages of cash to fund
operation, which means the laundry business can no longer prove its liquidity. The bank
therefore has urged a repayment of overdraft.

Another problem is the allocation of tasks in the workforce. There exists dull tasks that no one
wants to do, and there have been arguments between workers, indicating job dissatisfaction. This
leads to labour inefficiency and a potential increase in costs.

One problem Wesley faces is cash flow difficulties. His accounting records are three weeks out
of date, meaning customers have not been billed or paid. This creates a shortage of cash coming
into the business, leaving him unable to cover day-to-day expenses. The bank has already
warned that his overdraft is at its limit, which threatens the survival of the laundry if liquidity
cannot be restored.

Another problem is workforce inefficiency. Wesley recruited three workers but has not clearly
allocated tasks, leading to arguments about who should complete less desirable jobs such as
handling chemicals and cleaning. This results in job dissatisfaction, reduced productivity, and
potentially higher costs if output slows down or mistakes are made. These operational problems
make it harder for Wesley to meet his ‘next-day or nothing to pay’ promise, which could damage
the reputation of the business.

c. One reason is that understanding opportunity cost assists Wesley in the choice of profession.
He specialized in marketing instead of computer-based accounting, hence the sales of the laundry
went well while Wesley’s lack of experience in accounting brought about various difficulties.
The opportunity cost in this case is the accounting skills that could have been acquired if less
time, money and effort was spent on the profession of marketing. Had Wesley chose to work
more on computer-based accounting, he would have compromised the depth of the marketing
skills he now possesses. Understanding this would help Wesley evaluate and make better-
informed decisions, looking at his priorities regarding his business.

The concept of opportunity cost also helps Wesley understand the compromises involved in
building a loyal customer base. Wesley’s laundry allowed for credit transactions, enabling
convenience and increased potential footfall, and hence attracted an unexpected number of
customers. Unfortunately, his convenience brought about cash-flow problems that could have
been avoided if Wesley has adopted a tighter approach to financial transactions, like not allowing
credit transactions or at least setting limits to repayment, but which would risk bringing about
lower initial sales. Acknowledging this would help Wesley decide if he wants to prioritize a head
start with high sales but risky, or a safe one that is at the expense of initial sales, so as to make
the best-informed choice.

One reason why understanding opportunity cost would benefit Wesley is in his choice of
profession. He specialised in marketing rather than computer-based accounting, which meant
his business attracted strong sales due to effective promotion, but he struggled to keep accurate
financial records. The opportunity cost of this decision is the accounting skills he could have
gained had he focused less on marketing. If Wesley had prioritised accounting, however, he
would have had weaker marketing skills, and his laundry may not have attracted such rapid
customer growth. By recognising this trade-off, Wesley can better appreciate why his business is
successful in some areas but struggling in others, and he can decide whether to invest time or
money in improving accounting without undermining the strength of his marketing.

A second reason is in his decision to allow customers credit. This convenience increased
customer loyalty and sales, but it created serious cash flow problems when bills were unpaid.
The opportunity cost of offering credit is immediate cash that could have ensured survival, while
the opportunity cost of refusing credit would have been lower sales and possibly slower growth.
Understanding this helps Wesley evaluate whether growth at the risk of liquidity is worth
pursuing, or whether stricter repayment policies should be introduced to safeguard survival.

Overall, by applying the concept of opportunity cost, Wesley is able to weigh up which
compromises matter most. In the short term, survival may depend more on cash flow
management than marketing growth, so he must decide if protecting liquidity should take
priority over expanding sales.

d. Business plan is a detailed written document outlining the purpose and aims of a business
which is often used to persuade lenders or investors to finance a business proposal. For Wesley’s
laundry, this represents both opportunities and challenges.

On the one hand, the detailed business plan helped Wesley succeeded in persuading the bank
manager to lend him half of the capital needed for starting the business. This gives Wesley’s
laundry a head start, for his plan exudes credibility, leaving potential for straightforward future
financial support. Moreover, the well-thought-out business plan provides Wesley with a clear
direction in the beginning stage of the business, and therefore ‘RETURNED NEXT DAY, or
NOTHING TO PAY’ becomes his ‘north pole’ to navigate and having a focused path.
On the other hand, that detailed plan leads to inflexibility, making Wesley’s laundry almost fail.
As the number of customers exceeded Wesley’s expectation, a neat accounting system was not
prepared, leading to improperly recorded credit transactions that resulted in cash-flow problems.
The direct result insufficient cash to finance operation, entailing overdrafts. However, these
events affect Wesley’s credibility, he was urged to repay.

In conclusion, while a detailed business plan helped Wesley with financial access and early
navigation, it poses the risk of inflexibility that potentially leads to business failure. To be able to
survive and grow, Wesley’s plan would need to allow for more possibilities, and Wesley himself
has to be more willing to change to adapt to new situations in the dynamic business environment.

A detailed business plan provided Wesley with significant advantages, primarily in securing
launch funding and strategic direction, but its rigidity became a major liability when the business
encountered unexpected success, exposing critical operational and financial oversights.

The primary benefit of the plan was its role in securing external finance. The bank manager’s
approval of a $30,000 loan was contingent on the plan’s credibility, demonstrating thorough
market research and financial projections, which de-risked the proposal from the bank’s
perspective. Furthermore, the plan provided a clear strategic focus and established a unique
selling proposition (USP) – the “RETURNED NEXT DAY, or NOTHING TO PAY” promise.
This was crucial for initial marketing, helping the business differentiate itself and build a
reputation for quality, which directly led to the rapid spread of positive word-of-mouth.

However, the plan’s limitations proved severe. Its most critical flaw was inflexibility and a lack
of scalability. The plan was based on a conservative demand forecast and failed to include
contingency plans for rapid growth. This directly caused the cash flow crisis: the accounting
system was inadequate for the volume of transactions, leading to unrecorded credit and unpaid
invoices. This operational failure triggered the bank’s concern over his overdraft, threatening
the business's survival. Secondly, the plan’s focus was narrowly on launch and marketing,
overlooking detailed human resource management. It did not outline clear job roles or
protocols for allocating unpleasant tasks, leading to workforce disputes and inefficiencies. This
shows the plan failed to consider the operational factors of production beyond capital.

In evaluation, the business plan was ultimately more of a static document than a dynamic
management tool. While it was perfectly adequate for achieving its initial goal of securing
funding, its value quickly diminished after launch because it had not been designed to adapt.
The benefits were crucial for birth but short-lived, whereas the limitations threatened its
ongoing life. For Wesley to recover, he must now treat this experience as a lesson in scenario
planning, creating a new, flexible operational plan that addresses cash flow management,
scalable systems, and defined HR procedures to ensure the business can thrive, not just survive.

2.2: BUSINESS OWNERSHIP

Activity 2.1:
1. – raise substantial finance: selling 70 million shares at $26 each has made Twitter
founders become multimillionaires overnight because of the substantial sum of money
this can offer. Selling shares to the public means Evan Williams and Jack Dorsey can
reach many more potential buyers of their shares than when selling privately. As a result,
70 million, which is a vast number of shares, were successfully sold. This vast sum of
capital is unlikely to be obtained had Twitter remained a private limited company which
could only sell shares privately to members of family or friends, each of whom is
unlikely to be willing to buy a large number of shares.
One benefit is the substantial finance raised. By selling 70 million shares at $26 each,
Twitter raised nearly $2 billion. This is far more than what would have been possible as a
private limited company, where share sales are restricted to family and friends. Access to
this level of capital enables Twitter to fund major expansion plans, such as acquiring other
internet businesses, and reduces reliance on debt financing, which lowers interest costs. In
the long term, this financial strength improves Twitter’s competitiveness in the fast-growing
social media industry.

- Raise profile of the company: as shares are successfully sold to the general public, many
buyers get to know Twitter, which raises its profile. This sparks interest in Twitter’s
activities, encouraging investment, which allows Twitter to scale production and expand
through takeover of other internet businesses. This would consolidate Twitter’s place in
the market.
A second benefit is the increased public profile of the company. Selling shares to the general
public means millions of investors and analysts now follow Twitter’s performance. This
raises awareness of its brand and activities, encouraging confidence and further
investment. As more investors are attracted, the share price may rise, making future share
issues easier. In the long run, this enhanced reputation strengthens Twitter’s position
against competitors like Facebook and consolidates its role in the global market.
2. – Legal requirements concerning disclosure of information the general public, including
competitors: A public limited company has to publish financial accounts, giving
competitors access to sensitive financial data about Twitter and its operations
One drawback is the legal requirement to disclose financial information. As a public limited
company, Twitter must publish detailed accounts, which are available to the general public
and competitors. This transparency increases administrative costs and exposes sensitive
 information, such as revenue streams or growth strategies. Competitors like Facebook
could use this information to adjust their own strategies, making it harder for Twitter to
maintain a competitive advantage in the industry.

- Risk of takeover due to the availability of the shares on the stock exchange: as a public
limited company, other firms and purchase shares in Twitter and hence it is exposed to
the risk of being taken control of
Another drawback is the risk of takeover. Once shares are traded on the stock exchange,
other firms can buy significant amounts of Twitter’s shares. If a rival acquires enough
shares, they could attempt to take control of the company. This threatens the founders’
influence over strategic decision-making and may force Twitter to focus on short-term
profit to satisfy shareholders rather than pursuing its long-term vision for growth.

Activity 2.2:
1. Footie Ltd is in the private sector, because it is a Limited company which strives
continually for profit, and does not seem to be controlled by the state or government.
Footie Ltd is in the private sector. This is because it is a privately owned limited company,
run by shareholders and directors rather than by the state or government. Its main aim is to
generate profit, as shown by its record of increasing annual profits from $40 million to $58
million, and there is no evidence of public ownership or government control.
2. One possible reason for the directors deciding to keep Footie Ltd as a private limited
company, instead of going public, is that the company has no need of further capital to
fund further expansion. While becoming a public limited company does enable access to
vast amounts of additional finance, Footie Ltd is a long-standing business which has
already expanded to be one of the world’s largest private limited companies. Taking
considerable costs involved in legal formalities associated with establishing a plc, and
potential expenses in consultancy into account, it is conceivable that remaining private is
financially safetier and more efficient for Footie.
One possible reason is that the company does not need additional capital. Footie has
recently achieved record annual profits of $58 million on sales of $825 million, showing it
already generates enough internal finance to fund further expansion. Since the board itself
admitted there was “no need of further capital to fund further expansion”, a public flotation
would bring in unnecessary funds. Remaining private avoids the high legal and consultancy
costs of a stock market listing, while still allowing Footie to invest heavily in its shops,
brands and franchising operations.
Another reason is that going public poses the risk of a hostile takeover. Once shares are
traded on the stock exchange, other firms can buy significant amounts of Footie’s shares,
 which would benefit them greatly considering the established position and reputation of
Footie in the global market. If a rival acquires enough shares, they could attempt to take
control of the company. This threatens the founders’ influence over strategic decision-
making and may force Footie to focus on short-term profit to satisfy shareholders rather than
pursuing its long-term vision for growth.
A second reason is the desire to avoid takeover risk. Footie is one of the world’s largest
private limited companies and a leading player in the footwear market. If it became a PLC,
the company would be very attractive to global rivals such as Nike or Adidas, who could buy
up large numbers of shares on the stock exchange. A hostile takeover would threaten the
founding family’s long-standing control over the company, forcing Footie to prioritise
short-term shareholder returns instead of its long-term strategy of expanding franchises
and shifting more production to lower-cost countries in Asia. By staying private, the family
retains full control of decision-making and can pursue its growth strategy without outside
pressure.

3. One major benefit is the ability to raise substantial finance through a share issue. If
Footie floated on the stock exchange, it could attract millions of new investors and
generate capital far greater than its current annual profits of $58 million. This finance
could accelerate its global growth strategy, for example by opening more than its
existing 650 shops, expanding franchising, or acquiring rival footwear businesses. Such
investment would strengthen Footie’s ability to compete with international giants like
Nike and Adidas.

Another benefit is increased shareholder wealth and liquidity. The founding family, who
currently hold all the shares, could sell part of their holdings on the stock exchange. With
Footie’s established reputation and record sales of $825 million, its shares would likely be
in high demand, giving the family an opportunity to become very wealthy while still
keeping a stake in the business. This liquidity rewards the family for over 100 years of
ownership.

A further benefit is the enhanced public profile that comes with stock market listing. Being a
PLC would raise Footie’s visibility among investors and consumers, reinforcing confidence
in its brand. This could attract more partnerships with global suppliers and increase
consumer trust in its retail operations, supporting its strategy of shifting production to
lower-cost countries while investing heavily in branding and retailing.

Activity 2.3:

1. One potential benefit to Harry of opening a franchised Pizza Delight restaurant is that
he will be given advice and training as part of the franchise agreement. While Harry
might be a talented chef, he had experiences in working in the kitchens of the hotel,
 which barely provided him with any business experience to independently open his
own restaurants and build up his own customer base as he aspired. The franchisors
probably have had considerable experience in business ventures, as is evidenced by
their successfully opening 100 restaurants in other countries, which would help Harry
of his lack of business experience, the main obstacle to his dream of opening his own
restaurant to make the best use of his talents, by guiding him in the work of dealing
with the inevitable legal formalities, and formulating marketing strategies associated
with business. In case Harry’s cooking methods do not align with the brand’s style as
yet, he can be given training to adapt, hence further horning his skills.

Franchising offers Harry a structured and lower-risk entry into entrepreneurship,

which is especially important given his lack of formal business experience. By joining
Pizza Delight, Harry would receive comprehensive training in key operational areas
such as inventory control, staff management, and customer service protocols—skills he
currently lacks but would need to run a successful restaurant. For instance, instead of
having to figure out how to price menu items or manage supplier relationships on his
own, Pizza Delight’s established systems would guide him through these processes. He
would also gain access to proven promotional strategies, such as seasonal campaigns
and loyalty programs, which could help him attract and retain customers more
effectively than if he were starting from scratch. This structured support significantly
reduces the steep learning curve and uncertainty that typically come with launching an
independent business, allowing Harry to focus on improving his culinary skills while
operating within a tested and profitable framework.

Harry can also benefit from Pizza Delight’s established brand image and reputation. As
the franchisors had already opened 100 restaurants in other countries, the brand probably
has gained considerable customer loyalty and trust, and obtained a strong position in not
only the domestic, but also global market. Consequently, if Harry were to open a
franchised Pizza Delight restaurant, he would not only quickly attract a large number of
customer, hence quickly building his own customer base, but also not be exposed to
intense competition, as is often experienced by new start-ups. This minimizes the chance
of business failure, as a franchised business rarely has to go through the usual process of
trial and error like other forms of businesses. Hence, Harry can do away with the normal
burden of business struggles, and concentrate more on enhancing his skills to serve his
customers, as he always desired.

Sample 1: A significant benefit for Harry would be operating according to Pizza

Delight's proven business model. The case states the franchisor has "already opened 100
restaurants in other countries," demonstrating a concept that has been tested and
refined. This directly addresses Harry's "main problem," his "lack of business
experience." Instead of navigating the high-risk trial-and-error phase typical of a start-
up, Harry would be implementing a system with a established record of success. This
drastically reduces the risk of business failure, a crucial advantage given that Harry is
investing a substantial inherited sum of $100,000. He would benefit from pre-tested
recipes, supplier agreements, and store layouts, mitigating the uncertainties that often
lead new independent restaurants to fail.

Sample 2: Moreover, Pizza Delight’s established brand image and loyal customer base
would give Harry instant credibility in the local market—something that would be
extremely difficult to achieve on his own. As a new entrepreneur with no prior business
track record, Harry would likely struggle to convince customers to try his food,
especially in a competitive area saturated with dining options. However, by operating
under the Pizza Delight name, he benefits from the brand’s existing reputation for quality
and consistency, which can immediately attract foot traffic and boost initial sales.
Instead of spending months or years developing a unique brand identity, designing logos,
and building customer trust from scratch, Harry can tap into Pizza Delight’s proven
marketing strategies and recognizable branding. This not only accelerates revenue
generation but also reduces the risk of business failure—an important consideration for
someone new to the industry. In essence, the franchise acts as a shortcut to market
visibility, allowing Harry to focus on delivering excellent service and refining his
culinary skills within a trusted framework.

2. A significant disadvantage for Harry of agreeing to the terms of the franchise contract
would be that he cannot keep all of the profits made annually. Although Harry’s
business would be operating according to Pizza Delight’s proven business model, as a
newly formed one, innitial costs associated with renting or recruitment, and financial
rewards given to motivate employees, which the franchisors do not finance, are
inevitable, bearing a burden on Harry’s business to cover costs. As a new
entrepreneur with no prior business track record, Harry would likely struggle with
finding strategic sites for his business, taking on suitable people, and motivating
employees to increase productivity, which all lay the foundation for the success of the
business, but in which he would receive no advice or financial support. As a
consequence of trial and error owing to lack of experience, poor decisions would
likely be made, resulting in establishing a business on unattractive sites which fail to
draw foot traffic so as to boost initial sales, recruiting incompetent employees who
fail to make the desired food, failure to motivate employees in order to obtain
efficiency. Fixing any of these errors (by changing sites, recruiting new employees,
and trying new motivation strategies) would take a large amount of money, hence
eating into Harry’s business’s profits. As total turnover is then shared with the
franchisors, the possibility of making a loss is increased, not only affecting Harry’s
financial status, but also discouraging him from running his own business to make use
of his talents, which he always desired.
Another drawback to Harry would be strict controls over what he is allowed to do with
the store layout. On signing the franchising contract, he would have to agree to fit out the
restaurant in exactly the way the franchiser wanted, which means he would have no
freedom to decorate his restaurant the way he wants. Having quit his old job because he
become tired of being ordered around, Harry clearly showed the desire for autonomy,
independence in decision-making, and the opportunity to express his personal style as a
chef. This would greatly discourage him from complicated business work, even if it
helped him realize his dream.

One drawback is the financial burden of franchise costs. Harry would need to pay an
initial fee of $100,000 and then share a percentage of his turnover with Pizza Delight
each year. On top of this, he must finance his own premises and staff recruitment. For a
new entrepreneur with no business experience, these costs reduce the profits Harry can
keep and increase the risk that his restaurant may struggle to survive in its early years.
Another drawback is the loss of independence. The franchise contract requires Harry to
buy all supplies from Pizza Delight and fit out the restaurant exactly as instructed. This
removes his freedom to design the restaurant or adapt the menu to suit his own creative
ideas. Since Harry left his old job to escape being ordered around and wanted autonomy,
this strict control may leave him dissatisfied and undermine his motivation to run the
business long-term.
3. There are clear benefits for Harry in taking out the Pizza Delight franchise. The
biggest advantage is that it reduces risk. Pizza Delight has already opened 100
successful restaurants, so Harry would be following a proven model. This is
important because Harry admits his “main problem” is lack of business experience.
The franchisor also offers support in staff training, ingredients, and national
advertising, which would help overcome Harry’s weaknesses in marketing and
management.
However, there are also significant drawbacks. Harry would need to pay an upfront fee
of $100,000 and then share a percentage of turnover, which reduces his profits. He must
also finance his own premises and recruitment, which is risky for someone investing
inherited money. In addition, Pizza Delight requires strict compliance with store layout
and supplies. This limits Harry’s independence, even though one of his main reasons for
leaving his old job was to escape being ordered around.
On balance, whether Harry should take out the franchise depends on his priorities. If his
main goal is to minimise the risk of failure and secure steady returns, then franchising is
the safer choice. But if he values independence and creative freedom more than financial
security, he may find franchising frustrating. Given his lack of business experience and
 the size of his investment, it is likely more sensible for Harry to join the franchise at this
stage. Later, with experience, he could consider starting his own independent restaurant.
Activity 2.2:
Want to expand -> need additional capital -> partnership, private limited companies, public
limited companies
Want to pass the business on to children, Not want to risk personal property -> exclude
partnership
Competition: a limited company gains greater status -> more consolidated position -> less
exposed to competition
Avoid risks -> private limited (plc involves selling shares to the general public: share price is
subject to fluctuation -> unable to predict how much can be earned, risk of hostile takeover due
to the availability of shares on stock exchange)
I would recommend that Salman converts his sole trader business into a private limited company
(Ltd).
One reason is that an Ltd allows him to raise additional capital by selling shares to family and
friends. This is important because he wants to expand the petrol station shop, but he has “very
little money saved” and does not want to borrow. A private limited structure gives access to
new finance without relying on risky loans.
Another reason is that an Ltd offers limited liability, which protects Salman’s personal assets.
This is crucial as he is “keen to avoid business risks” and does not want to expose his property
if the expansion fails.
In addition, becoming an Ltd makes it easier to pass on the business to his children, since shares
can be transferred directly. This matches his desire to keep the firm profitable for future
generations.
By contrast, a partnership would expose him to unlimited liability, while a public limited
company would increase risk of takeover and require wider shareholder involvement, which
conflicts with his wish to “keep control of the business.”
Overall, a private limited company best balances Salman’s need for more finance, risk
avoidance, and succession planning, while maintaining control within the family.
Activity 2.5:
1. Nestlé’s alliance with Fonterra allows it to solidify its presence in the Caribbean region.
By leveraging Fonterra’s expertise in milk processing, Nestlé can ensure a consistent
supply of high-quality dairy products tailored to local preferences. This strategic move
 positions Nestlé to compete more effectively with regional players and expand its
consumer base.
With Fonterra handling the technical aspects of milk processing, Nestlé can concentrate on
its core strength: marketing branded dairy products. This division of responsibilities enables
Nestlé to invest more in advertising, packaging innovation, and customer engagement—
ultimately boosting brand recognition and loyalty across the Caribbean.
2. The joint venture holds promising prospects, but its success will depend on several
critical factors:
- Strengths Supporting Success:
 Complementary Expertise: Nestlé’s marketing capabilities and Fonterra’s processing
proficiency create a balanced and efficient business model.
 Growing Regional Demand: The Caribbean’s increasing appetite for dairy products
provides fertile ground for expansion.
 Global Brand Trust: Nestlé’s established reputation can accelerate consumer acceptance
and drive early sales momentum.
- Challenges to Navigate:
 Local Competition: Existing dairy producers may pose resistance, requiring strategic
pricing and product differentiation.
 Supply Chain Vulnerabilities: Dependence on local milk sources and logistics
infrastructure could impact consistency and cost.
 Cultural Adaptation: Success hinges on understanding and responding to local tastes,
dietary habits, and consumer expectations.
- Judgement: While the venture is strategically sound, its success will depend on Nestlé’s
agility in adapting to local market dynamics and Fonterra’s ability to maintain
consistent product quality. If both companies remain responsive to consumer feedback
and invest in long-term brand building, the joint venture is well-positioned to thrive in
Trinidad and Tobago and potentially expand across the Caribbean.
Exam-style questions
Short answer questions
1. One difference between private-sector and public-sector organizations is that the public-
sector is controlled by the state or government, while the private sector is controlled by
individuals and company for profit.
One key difference is that the public sector is controlled by the government and is focused on
providing services to the public without making a profit, such as the NHS or public schools.
In contrast, the private sector is run by private individuals or companies with the primary
goal of making a profit, such as businesses like Amazon or Starbucks.
2. A sole trader has unlimited liability, which means the owner risks losing personal
property in case their business fails to pay for itself. On the other hand, a private limited
company’s owners benefit from limited liability, and hence only risk losing the amount
they have invested in the company and not any of their personal wealth.
A sole trader has unlimited liability, meaning they are personally liable for any debts of the
business. In contrast, a private limited company has limited liability, meaning shareholders
are only liable for the amount they invest in the company, protecting their personal assets.
3. Shares of a public limited company are issued to a large number of individuals and
institutions as investors, since they are available on the stock exchange. Therefore, unlike
private limited company which enables retention of a majority of shares in case of a legal
structure conversion, public limited company involves an annual general meeting in
which shareholders appoint a board of directors who control the management and
decision-making of the business.
In a public limited company (PLC), ownership is held by shareholders who own shares in the
company, but they typically do not manage day-to-day operations. Instead, control is
exercised by the board of directors, who are appointed to make key business decisions and
ensure the company runs effectively.
4. A joint venture is when two or more businesses work closely together on a project, hence
the costs and risks of a new business venture are shared between partners. This is
especially helpful since the cost of developing new products are rising rapidly due to
inflation. When costs are shared, each of the partners involved will be able to have more
finance available for scaling production, hence expanding their own businesses.
Moreover, as risks are also shared, in case problems when venturing such as low revenue
of the product they develop together which cannot cover costs, each of businesses bear
less financial burden.
One key benefit of a joint venture is the ability to share risks and costs, particularly when
entering new markets or developing new products. By pooling resources, businesses can
reduce financial risk while accessing new expertise and opportunities that they may not have
on their own.
5. One reason for the directors of a public limited company to convert the business back
into a private limited company by buying back all of the shares is to overcome the
problems of separate ownership and control. In a private limited company, senior
executives are usually the majority shareholders, while in a plc a board of directors are
appointed not based on the amount of shares they own. The separation of ownership and
control can lead to conflicts over objectives, with shareholders preferring short-term
profits and directors aiming for long-term growth, for example. Therefore, if directors
 wish to focus on sustainable growth of their business instead of immediate personal gain,
switching back to an Ltd from a plc is an option.
Directors may decide to convert a public limited company back to a private limited company
to avoid the pressures of short-term profit demands from public shareholders. In a PLC, the
board must focus on immediate shareholder returns, but in a private limited company,
directors can make longer-term strategic decisions without the same level of scrutiny from
external investors.
6. By having a separate legal identity from its owners, a company itself and not the owners,
will be involved in legal procedures in case problems such as faulty products occur,
exposing it to the associated responsibility. This keeps the shareholders away from
unlawful activites involved in their company but unbeknownst to them, which means that
they can still spend time on developing other strategies, such as R&D and marketing,
which are not delayed by legal issues. Once the company has overcome such issues, the
other plans can therefore continue without a hitch, increasing the possibility of future
success.
Moreover, continuity, as a result of the legal personality of the business, means there is no
break in ownership in case of the current owners’ deaths. Ownership, hence, continues
through inheritence of the shares, which ensures the company’s flow of operation. This leads
to overall efficiency as operation remains continuous, without pauses or shifts as is inevitable
in a sole trader or partnership.
Having a separate legal identity allows a company to continue operating even if the owners
change or pass away, as the business itself is seen as a separate entity from its owners. This
continuity provides stability, making it easier to secure long-term contracts, obtain
financing, and develop long-term strategies.
7. Limited liability of companies means that the investors risk losing only the amount they
have invested in the business venture, without their personal wealth potentially being lost.
This assures investors, making them more prepared to provide finance for the company’s
expansion, as the risk of failure is transferred from investors to creditors.

Limited liability means shareholders are only liable up to the amount they invest, with no
risk to their personal assets. This protection makes investors more confident to provide
finance, increasing the company’s ability to raise funds for growth.

8. In private limited companies, ownership and control is closely linked with each other.
This means that by owning more shares, owners can gain more control of the business,
meaning that it is usually the majority shareholders that make important decisions in this
form of business. That links to the fact that the shareholder who own more than 50% of a
Ltd obtains complete control over it. A public limited company, on the other hand,
 involves the separation of ownership and control, meaning the majority shareholders and
those who control the management and decision making of the business are no the same,
as there is a board of directors appointed at the annual general meeting.
In private limited companies, shareholders usually control management directly, as majority
owners make decisions. In public limited companies, however, ownership is spread among
many shareholders and control rests with a board of directors, creating a separation
between ownership and control.
9. Different forms of business ownership leads to the distinction in the ability to raise
finance between them due to liability. Unlimited liability poses unlimited risks to the
personal wealth of investors in a business, making them reluctant to provide finance to
such a venture, hence effectively capping the business's growth potential at the level the
owner can self-fund. That explains why sole traders and even partnerships remain fairly
small due to lack of additional capital for expansion. Limited liability, on the other hand,
enables more ambitious planning, allowing investors to undertake ventures. Hence,
limited companies with limited liability are often better funded and tend to grow
dominant in the market.

Sole traders and partnerships face difficulty raising finance because of unlimited liability,
which deters investors. In contrast, limited companies with limited liability can attract more
finance, supporting larger-scale expansion.

10. Limited control over a franchised business is what drives entrepreneurs to establish an
independent business instead. A franchise agreement states that what the franchisee does
with the product, pricing and story layout asre strictly bound by rules set by the
franchisor. This leaves the franchisee little room for their own ideas and creativity even
when operating their own business. Lack of independence discourgaes an entrepreneur
from taking out a franchise agreement and stimulates interest in an business venture of
their own, which allows for origianl ideas and innovation, the usual characteristics seen
in entrepreneurs.
Franchisees must follow strict rules on products and operations, which limits creativity and
independence. An entrepreneur may prefer to start their own business to have full control
and freedom to innovate.
11. A clear distinction between private limited companies and public limited companies is
the ability to raise finance. Although both types of business ownership benefit from
limited liability, encouraging investors to inject additional finance, and the ability to sell
shares, private limited companies can only sell shares privately to friends and members of
family, unlike public limited companies which are able to raise vast amounts of finance
for expansion by selling shares to the general public. Therefore, many private limited
companies which aim to expand go public to raise the finance needed to scale production
 so as to meet the needs of more customers, hence increasing sales and potentially lead to
increased market share.
Private limited companies can only sell shares privately to friends or family, while public
limited companies can sell shares to the general public through a stock exchange, allowing
them to raise much larger amounts of finance.
12. One defining feature of a social enterprise is that they have social aims and use ethical
ways of achieving them. Although as a business, not a charity, a social enterprise needs to
make profit to survive (since they cannot rely on donations to operate), goals related to
market power cannot override its social objectives, unlike other types of business which
are results-driven and sometimes use devious ways to obtain profits and achieve growth.
A social enterprise aims to achieve social or environmental goals while still operating as a
business, reinvesting profits into its mission rather than maximizing returns for owners.
13. A social enterprise is often established based on the hope to contribute to social causes,
hence the owners of such a business are likely not driven by financial gains of a business.
This means they do not regard their business as their main source of income, or they are
financially stable to dedicate time and energy for social objectives, instead of personal
gain.
Owners may set up a social enterprise because they prioritise achieving social goals over
personal profit, for example addressing community issues or environmental concerns.
14. A cooperative is a business owned and run by its members.
A cooperative is a business owned and run jointly by its members, who share the profits and
benefits of the enterprise.
15. Primary sector involves extracting or harvesting natural resources from the land or sea, of
which activities include farming, fishing, forestry, and mining. Tertiary sector, on the
other hand, involves activties of providing services to the final consumers or businesses,
such as shops, restaurants, and banks.
The primary sector involves extracting natural resources such as farming and mining, while
the tertiary sector provides services to consumers and businesses, such as retail and
banking.
16. By taking out a franchise agreement for a hairdressing business, an entrepreneur benefits
from the franchisor’s established unique styles in the profession, which guide them in
case they have not established their own, and have only obtained basic hairstyling skills.
As such styles are potentially already proven and popular, the franchised hairdressing
business will not face as much difficulty in obtaining instant market visibility, which is
 difficult to achieve independently from scratch, which is associated with the usual phase
of trial and error.
A franchise offers a recognised brand and proven business model, which attracts customers
and reduces the risk of failure compared to starting an independent business from scratch.
Essay questions
1.
a. One difference between sole traders and limited companies involves liability. While sole
traders are associated with unlimited liability, meaning the owner risks losing their personal
assets in case the business cannot pay for itself, limited companies’ shareholders benefit from
limited liability and are only liable for the amount they invest in the company, protecting their
personal assets, even if the companies meet with debts. For example, if an entrepreneur were to
invest a fixed amount of money in a clothing business and it cannot cover the costs due to lack of
sales, they have to draw on their personal savings and potentially pay debts as a sole trader. In
contrast, as a private limited company, its owners do not to pay any additional costs or debts
outside that fixed amount. This explains why for many investors, investing in limited company
gives assurance and therefore is more attractive than investing in sole traders.
Another difference lies in the ability to raise finance. Limited companies, unlike sole traders, can
obtain capital via the sales of their shares. Particularly, private limited companies allow for
private sales of shares to friends or members of family, whereas public ones have their shares
available on the stock exchange and sold to the general public. This means that sole traders are
deprived of a vast source of finance available to limited companies, as they cannot sell shares to
the general public. The finance available for scaling production to meet the needs of more
people, hence increasing sales, leading to greater market share explains why limited companies
can potentially grow dominant in the market, while sole traders remain fairly small because
inability to raise finance through the sale of shares.
One key difference is liability. Sole traders have unlimited liability, meaning their personal
assets are at risk if the business cannot pay its debts. In contrast, shareholders in limited
companies have limited liability, so they only lose the amount they invested. This protection
makes investing in limited companies more attractive and reduces personal financial risk.
Another difference lies in access to finance. Sole traders rely mainly on personal savings or
bank loans, which limits their ability to grow. Limited companies, however, can raise capital by
issuing shares. This provides a larger source of funds for expansion, helping them to scale
production and compete more effectively.
b. A private limited company is often a small to medium-sized company owned by shareholders
who have limited liability; the company cannot sell its shares to the general public. A public
limited company is often a large company owned by shareholders who have limited liability; a
plc can sell its shares to the general public.
Becoming a public limited company allows shares to be sold to the general public, unlike private
limited companies which can just sell shares privately to friends and members of family, hence
attracting a significantly greater number of investors to fund for scaling production. This helps
the company meet the needs of more people, hence attracting a larger customer base, which leads
to increased sales and therefore increased market share. Consequently, going public is an option
a business which has grown dominant as a private limited company but still seek further growth
should consider.
However, there are factors to consider due to the procedures involved and some distinctions
between a Ltd and a plc. Firstly, high costs may be involved in seeking advice from business
consultants. While an entrepreneur is likely equipped with business knowledge, these legal
procedures are related to laws and sometimes involved buraeucracy, with any mistake in
paperwork may lead to the owner being held legally responsible. This complicated process is
likely beyond the entrepreneur’s knowledge, which almost necessitates seeking advice.
However, as this can entail a vast sum of money, the owner may be discouraged in going public,
as that amount of money can be used for further expansion as a Ltd.
Secondly, going public involves the separation of ownership and control. In private limited
companies, shareholders usually control management directly, as majority owners make
decisions. This allows for the shareholder who owns more than 50% of the Ltd shares to obtain
complete control over it. In public limited companies, however, ownership is spread among
many shareholders and control rests with a board of directors, creating a separation between
ownership and control. This makes investors exposed to the pressures of short-term profit
demands from public shareholders, as in a PLC, the board must focus on immediate shareholder
returns, but in a private limited company, directors can make longer-term strategic decisions
without the same level of scrutiny from external investors. In particular, institutional investors,
may prioritize short-term gains and dividend payouts to maximize immediate returns. Directors,
focused on their reputation and the long-term health of the business, may prioritize strategies like
research and development or market expansion that reduce short-term profits but aim for
sustainable long-term growth, creating a fundamental conflict of interest.
In addition, while public limited companies can raise vast amounts of finance due to the
availability of shares on the stock exchange, this is a double-edged sword as share prices are
subject to fluctuations, sometimes for reasons beyond the business’s control, such as the
dynamics of the economy. If share prices drop too low, many investors can afford to buy large
numbers of shares, hence the company may soon meet with a hostile takeover.
While becoming a public limited company provides access to substantial sums for expansion, a
rapidly expanding Ltd may well consider the high costs involved in seeking advice, the
separation of ownership and control, and the risk of a hostile bid. Whether this move leads to
success would hence depend on the owners’ acknowledgement of the risks involved to decide if
they want to compromise, or formulate preemptive strategies for potential issues as mentioned
above.

One factor is the cost and complexity of going public. Becoming a plc requires legal and
administrative procedures, as well as ongoing disclosure requirements. These costs may absorb
funds that could otherwise be used for growth as a private company.
A second factor is the separation of ownership and control. In a private limited company,
shareholders often retain direct control. In a plc, ownership is spread among many shareholders
and decisions are made by a board of directors. This may expose the business to short-term
profit pressures from external investors.
A third factor is the risk of hostile takeovers. Once shares are traded publicly, competitors or
external firms may attempt to gain control by buying a majority stake, which could undermine
the original owners’ vision for the business.
Overall, while becoming a plc gives access to substantial finance for expansion, the most
significant consideration is the loss of control. If the owners want rapid growth and are willing
to compromise on independence, converting to a plc is suitable. If maintaining strategic control
is more important, remaining a Ltd may be preferable despite slower expansion.
2.
a. One possible benefit is the reduced risk of business failure. As the franchisor probably has an
established brand image, the franchised business will likely obtain instant credibility – something
that would be difficult to achieve in the beginning phase of an independent startup, as it is
characterized by trior and error. As established brand image also means the franchisor has built a
loyal customer base, this instant credibility would likely help the franchisee attract foot traffic
and enhance initial sales, leading to increased revenue. As a result, costs are more likely to be
covered and profit be made, assuring the business’s survival and potential growth.
Another benefit is potentially low competition. The franchiser agrees not to open another branch
in the local area, meaning one possible competitor is ruled out. In addition, as the franchiser has
already had an established position in the market, the franchised business has more chance of
growing dominant, hence not significantly affected by market dynamics.
One benefit is the reduced risk of failure. A franchise benefits from the franchisor’s established
brand name and reputation, which gives the new outlet instant credibility. This attracts
customers more quickly than an independent startup, boosting sales and improving the chances
of covering costs and making a profit.
A second benefit is protection from competition. Franchise agreements often grant exclusive
territorial rights, meaning no other outlets of the same brand can open nearby. This reduces the
threat of rivals in the local area, allowing the franchisee to build a stable customer base and
secure long-term growth.
b. Joint ventures are when two or more businesses agree to work together on a project and set up
a separate business for this purpose.
There are certain benefits to a food manufacturing business planning to use a joint venture to
expand sales internationally. One of them is the ability to share risks and costs, particularly when
entering markets in new countries or developing new types of food. By pooling resources from a
business with specializes in farming, for example, the food manufacturing business can reduce
financial risk while accessing new expertise, such as manufacturing food from farming produce,
and opportunities, like approaching customers of the farming business, that they may not have on
their own. In addition, the other business involved in the joint venture may already have major
markets in different countires. The food manufacturing business could explpoit these with R&D
strategies, add new products to meet the needs of such markets. For instance, if the other
business involved are dominant in, say, the sporting market worldwide, the food manufacturing
one could develop food products suitable for fitness purposes. This increases sales and
potentially leads to increased market share.
However, such agreements come with risks. One of them is culture clash. Even when the two
businesses can target the same market, the differences in style is common. For example, the food
manufacturing firm uses line production and is capital-intensive may have conflicts with a shoe
manufacturing company which uses job production over management style and output. This
decreases work efficiency, potentially leading to decreased visibility since one business have to
wait for the other before the final product is launched. Moreover, the business failures of one of
the partners would put the whole project at risk. As costs and risks are shared, the debts of one
partner would also be the burden of the other. This would put the manufacturing at a
disadvantage, since its initial goal is expansion and growth.
In conclusion, while a joint venture brings about market opportunities, the significant risks are
potential conflicts the mutual disadvantage borne by both partners in case one of them fails.
Therefore, the food manufacturing business should sign a joint venture agreement with those in
the same industry or at least have the same management style, such as a farming business. If it
wants rapid growth and is willing to compromise on risks of failure of the other, a joint venture
is suitable. If it wants to avoid financial risks, remaining without parners is advisable, even if it
means less opportunities for growth.
A joint venture is when two or more firms form a separate business to share resources for a
specific project. For a food manufacturer expanding abroad, one benefit is shared risk and cost.
Entering new markets requires heavy investment in distribution and R&D; by partnering with
a local firm, financial risks are reduced and the venture gains local expertise, making entry
smoother and more cost-effective.
Another benefit is access to established markets and networks. A partner in the target country
may already have strong distribution channels and customer relationships. This can help the
food manufacturer adapt products to local tastes and increase sales more quickly than
expanding independently.
However, risks exist. One is conflict in management style or objectives. If the partners disagree
over strategy, delays or inefficiencies may result. Another risk is shared liability: if one firm
faces financial problems, the burden falls on both. This may harm the food manufacturer’s
growth if the partner underperforms.
In conclusion, joint ventures are useful for spreading risk and accelerating market entry,
especially when the partner brings local knowledge. However, success depends on compatibility
between firms. If the food manufacturer seeks rapid growth in unfamiliar markets, a joint
venture is suitable. If it prioritises control and risk avoidance, independent expansion may be
safer.
Data response questions
1.
a.
i. One benefit to an entrepreneur of being a sole trader is that it is easy to set up and entails no
legal formalities.
ii. Parnership is a business formed by two or more people who will usually share responsibility
for the day-to-day running of the business. Partners usually invest capital in the business and will
share profits.
b.
i. Joe’s business is currently operating in the secondary sector, since his tea and coffee blending
and packaging business turns natural resources (coffee beans and tea leaves) into finished goods
and sells to chains of retail stores; his business operates in a manufacturing factory.
ii. Joe is planning to set up his new business in the tertiary sector, since he is thinking of
purchasing a few cafes and tea shops using capital obtained from selling his factory, to directly
provide products and services to consumers.
c.
One problem Joe may face is his lack of experience in the service industry. While he has
operated a manufacturing business selling to retailers, running cafés requires skills in customer
service, managing staff, and ensuring consistent quality in a hospitality environment. Without
this expertise, Joe could struggle to attract and retain customers, leading to poor sales despite
the initial investment.
Another problem is the high financial risk involved in setting up cafés. Unlike his current
factory-based operations, cafés require prime locations, interior design, staff training, and
marketing to build a customer base. These fixed costs are high, and if demand is lower than
expected, Joe may face heavy losses. Since he already needs extra capital beyond the sale of his
factory, borrowing large sums could increase financial pressure and make the business
vulnerable if competition is intense.
d.
Joe could convert to a partnership, which would allow him to raise additional finance from his
friend who has experience owning a shop. This may reduce Joe’s financial burden and bring in
extra managerial expertise. However, profits would have to be shared, and disagreements over
decision-making could slow down operations. Importantly, a partnership still has unlimited
liability, meaning Joe’s personal assets remain at risk if the café business fails, which is
problematic given the capital required.
Alternatively, setting up a private limited company (Ltd) would enable Joe to raise more capital
by selling shares to family and friends while keeping control of ownership restricted. Limited
liability would protect his personal wealth, reducing risk when investing large sums in cafés and
tea shops. However, forming a company involves more legal formalities and disclosure of
accounts, which could increase costs and reduce privacy.
Remaining a sole trader is unlikely to be suitable, since Joe has already realised his factory sale
will not raise sufficient capital and the risks of expansion would fall entirely on him.
In conclusion, the most suitable ownership is a private limited company. It enables Joe to raise
the significant extra capital needed while limiting his personal financial risk. Although legal
requirements are greater, the protection and access to funds outweigh the disadvantages,
making this the most appropriate structure for Joe’s café expansion.
2.
a.
i. One benefit of private limited companies is that they are able to raise additional finance by
selling shares, unlike sole traders or partnerships.
Able to raise capital from the sale of shares (not to the public).
ii. innitial public offering (IPO) is the first launch of shares sold by a private limited company.
An initial public offering (IPO) is the first time a company offers its shares for sale to the
general public. It is usually done to raise capital for expansion and results in the business being
listed on a stock exchange. An IPO is part of the process of a private limited company
transitioning to become a public limited company.
b. One of the primary reasons is expansion. CWD started as a sole trader, then turned into a
partnership when a business partner Eva was taken on, which helps fund expansion, by investing
in machinery to produce better recycled material, for example, hence attracting more
manufacturing firms, which leads to increased sales and potentially increased market share for. It
later turned into a private limited company to benefit from limited liability, encouraging
investment. This also enables CWD to raise capital from selling shares. As a result, CWD has the
finance availbale to invest in trucks and waste recycling plants, hence producing better products
and attract more customers to become profitable. Lastly, it went public through IPO, with shares
sold successfully, hence increasing visibility, raising awareness of its brand and activities,
encouraging confidence and further investment for growth.
Another reason is raising the business’s profile. As selling shares was not possible as a sole
trader and partnership, CWD was not as visible to investors as when it become a limited
company. As investors may also have developed a large customer base, not being able to attract
them means CWD’s customer base remains limited, hence leading to low sales, threatening the
business’s survival as a whole.
Sample 1: One reason the business ownership of CWD has changed is the need for additional
capital to fund growth. Rajesh initially operated as a sole trader, which limited the funds
available for expansion. To overcome this, he brought in Eva as a partner who invested capital.
This partnership allowed the business to grow beyond what Rajesh could manage alone.
A second reason is the desire to expand on a much larger scale, which required even more
capital than a private partnership could provide. This led to the decision to convert the business
into a private limited company, and later into a public limited company (PLC) through an initial
public offering (IPO). Becoming a PLC allowed CWD to raise significant funds from the public,
enabling large-scale investments in trucks, recycling plants, and helping the company grow to
control 56% of the market in Country X.
Sample 2: One primary reason for the change in ownership was the need for expansion. CWD
started as a sole trader, but to grow, Rajesh took on Eva as a partner to invest capital. Later,
they became a private limited company to benefit from limited liability and raise capital more
easily through share sales. This allowed investment in trucks and recycling plants, leading to
better services, increased sales, and profitability. Eventually, they converted to a public limited
company (PLC) to raise even more capital through an IPO, helping further expansion and brand
visibility.
Another reason was to raise the business’s profile. As a sole trader and partnership, CWD had
limited access to investors. Becoming a limited company made it more attractive to investors and
increased public awareness. This wider exposure helped build customer trust and attract further
investment, supporting long-term survival and growth.
c. One key advantage to Rajesh of converting CWD to a public limited company was the ability
to raise large amounts of capital through the IPO. This funding enabled the company to expand
rapidly by purchasing more trucks and building waste recycling plants. As a result, the company
became highly profitable, and both Rajesh and Eva became wealthy shareholders.
However, one significant disadvantage is that Rajesh lost some control over the business. As a
PLC, shares are owned by public investors, and major shareholders can influence or interfere
with decision-making. Rajesh, although still CEO, does not like this interference, which limits
his freedom to manage the company the way he used to when it was privately owned.
In conclusion, while the conversion to a PLC brought financial success and business growth, it
came at the cost of reduced autonomy for Rajesh, which he finds frustrating.
d. CWD has evolved from a sole trader business to a partnership, then a private limited
company, and finally a public limited company (PLC). Each change in ownership brought
advantages and challenges.
As a sole trader, Rajesh had full control but limited capital. When he formed a partnership with
Eva, he gained additional investment but still carried most of the management responsibilities.
The shift to a private limited company gave them limited liability and helped them reinvest
profits efficiently while keeping ownership between themselves.
However, the biggest change came when they decided to go public and form a PLC. This
allowed them to raise large amounts of capital, which enabled rapid growth and market
dominance. The IPO was a financial success, making Rajesh and Eva wealthy. Yet, it also led to
a loss of control. Rajesh now has to deal with shareholder interference, which he dislikes.
Now that CWD has received a takeover offer from a multinational company at a high price,
Rajesh must decide what ownership structure is most appropriate. If he values control and
independence, staying as a PLC may not be suitable. If he wants to retire or move on, accepting
the offer would give him a large financial return and remove the stress of public ownership.
Overall, the most appropriate form of ownership now depends on Rajesh’s priorities. If he
values independence, reverting to a private limited company might be better. But given the high
takeover offer and his frustration with shareholder pressure, selling the business to the
multinational company seems to be the most appropriate option at this stage. It provides
maximum financial reward with minimal future involvement.
CHAPTER 3. SIZE OF BUSINESS
Activity 3.1
1. The largest business is:
 - Using number of employees: Z
- Using capital employed: Y
- Using revenue: X
- Using selling space: Y
- Using number of outlets: Z
2. According to the results, Z is largest when measuring business size using number of
employees or selling space, Y is largest using capital employed or selling space, while X
is largest as long as revenue is concerned. This means that different methods of
measuring brings about potentially different results. For example, a capital-intensive IT
business may have very few employees, and a large business in selling area may make a
loss. It is important to select the measure of size most appropriate to the use that the data
is going to be put.
3. a. A supermarket’s selling area cannot determine its market power, since large-in-space
ones may fail to attract consumers. While a significant number of outlets may be opened
with an aim to reach more consumers, this may fail due to faulty marketing strategies.
Similarly, a large number of employees may still fail to deliver the desired service to gain
loyalty, and significant capital employed may prove futile if not able to produce sought-
after food. Revenue partly reflects sales and consumer interests and loyalty, and hence is
the preffered measure of size.
The government might focus on sales turnover in assessing monopoly power. Competition
legislation usually defines monopoly in terms of market share; this is best measured by revenue.
b. Capital employed
Capital employed gives an indication of the capital of a business. Capital employed measures
the total value of all the long-term finance invested in the business. It is the sum of shareholder
capital and non-current liabilities.
c. Revenue
Selling space will be particularly relevant in determining sales potential, as this determines the
amount of stock that can be displayed for customers to purchase and the number of different
product lines that can be sold.
Activity 3.3

4. Analyse the reasons why Shuanghui decided to take over Smithfield.

Shuanghui's decision to acquire Smithfield was a strategic move driven by several key factors:

1. Securing a Reliable and High-Quality Supply Chain: The primary reason was to gain
direct access to a massive, consistent, and high-standard supply of meat. Smithfield is
 one of the largest meat producers and processors in the USA, taking over which
guarantees Shuanghui a huge new source of meat to feed its processing plants in China,
insulating it from supply fluctuations and quality concerns in the domestic market.
2. Meeting Soaring Domestic Demand: China's population is experiencing rising incomes
and a growing middle class, leading to increased consumption of protein, particularly
meat, a staple of the Chinese diet. This takeover allows Shuanghui to directly meet this
surging demand by importing trusted, US-produced meat, thereby capitalizing on a
powerful consumer trend.
3. Acquiring Advanced Technology and Expertise: By acquiring Smithfield outright,
Shuanghui gains immediate access to world-leading technologies in animal husbandry,
food safety, processing efficiency, and supply chain management. This is a faster and
more effective way to upgrade its own operations than developing these capabilities
internally or through a joint venture.
4. Gaining a Prestigious Global Brand: Smithfield is a well-known and trusted brand in
the US and internationally. The takeover instantly gives Shuanghui ownership of this
valuable brand equity, which it can leverage to build its reputation for quality and safety
both at home and in future global export markets.
5. Financial Capacity and Strategic Shift: Chinese companies like Shuanghui have
accumulated significant "spare capital." This financial strength allows them to move
beyond joint ventures (which involve sharing control and profits) to outright ownership,
giving them full control over strategic decisions and all the profits generated by the
acquired company.

5. Evaluate the benefits to any three of Smithfield’s stakeholder groups of this takeover.

1. Shareholders:
Shareholders are the primary beneficiaries of this deal. They received a significant and
immediate financial gain. The buyout was agreed at $34 per share, which represented a
premium over the market price at the time. With 96% of shareholders approving the deal, it is
clear that the vast majority viewed the offer as highly favorable, providing them with an
attractive cash exit from their investment. However, once shares have been sold, there will be
no future dividends.

2. Employees (Workers and US Managers):

The employees of Smithfield also benefit from this takeover. Workers are "satisfied with the
deal" because:

- Job Security: It has been agreed that "existing US managers will not be replaced."
Shuanghui’s resources will provide greater financial stability for Smithfield and therefore
protect jobs. However, in the long run, Shuanghui may decide to close the US factories and
move production abroad.
- Stable Pay: "Pay levels will not be changing. "This provides significant reassurance and
stability for the workforce, eliminating the common fear of immediate job losses or wage cuts
following a foreign acquisition. The continuity of management also suggests operational
stability. However, pay levels cannot be guaranteed in the future.

3. The US and Chinese Economies (as a broader stakeholder group):

While not a traditional stakeholder group like employees, the economies of both nations benefit
from strengthened trade links. The text highlights that the deal will "increase the already close
trade links between the two countries."

- For the US: It represents a major export opportunity for US agricultural products, supporting
jobs in farming and processing and bringing a substantial inflow of capital ($4.7 billion) into the
US economy.

- For China: It secures a vital food import source to ensure domestic stability and meet
consumer demand. This deepens economic interdependence, which can be a stabilizing force in
the bilateral relationship. Shuanghui may expand operations in the USA, increasing employment
and output. However, profits will flow back to China.

Activity 3.4
1. A strategic alliance is a form of external growth that does not involve complete
integration or changes in ownership, and keeps the parties to the agreement independent.
The strategic alliance between Starbucks and Nestle has brought about various
advantages for both parties.
For Starbucks, this agreement means reduced total time for getting products to market. As Nestle
has the right to distribute Starbucks products to retailers, it would most likely tackle the job of
“local decoration” as was asked by customers, and for the lack of which Starbucks was criticised.
For Nestle, the right to distribute Syarbucks product would be a chance for it to understand the
booming drink-anthom coffee market, and as market for a food business and for a drink business
have certain similiarities (age groups, trends), it may seek growth opportunities.

A strategic alliance allows both firms to grow externally without losing independence.
For Starbucks, the alliance with Nestlé reduces the time and cost of distributing its products to
international markets. Nestlé’s established global distribution network gives Starbucks access
to more retailers and customers worldwide, enabling it to expand rapidly without setting up its
own costly logistics systems. This also helps Starbucks respond to customer criticism, since
Nestlé’s expertise in food retailing allows better adaptation to local preferences.
For Nestlé, the alliance provides access to the booming at-home coffee market, enabling it to
diversify beyond its traditional food business. It benefits from Starbucks’ strong global brand
and reputation in premium coffee, which increases Nestlé’s product portfolio and sales
opportunities. Both firms may also gain from economies of scale in marketing and distribution.
2. One benefit is access to a booming market. China has a rapidly growing middle class
whose incomes are high. Higher incomes encourage such customers to try Starbucks
products instead of those from small local café businesses which are much cheaper. This
means Starbucks are able to meet with high sales even in the beginning of the business
venture in a different country. Rapid growth in such a market enables Starbucks to
minimize the possibility of business failure in a host country, of which the consequences
would be a lot of costs due to legal procedures, and damage to its reputation.

Another benefit is the rising middle class’s taste for Western culture. This helps
Starbucks reach a market suitable for its styles, without having to resort to changes,
which would be a distortion of its brand image. As its styles allign with current trends in
China, rapid growth would enable Starbucks to reach more and more customers whose
incomes are rising, and are becoming more willing to purchase such a luxury (compared
to local coffee). This leads to increased sales and potentially increased market share,
which strengthens Starbucks’ reputation.

One key benefit is access to a booming market. China has a rapidly growing middle
class with rising disposable incomes. These consumers are increasingly willing to spend
on Western brands such as Starbucks, despite cheaper local cafés. This allows Starbucks
to achieve high sales volume and revenue growth.

Rapid expansion also gives Starbucks a first-mover advantage. By opening thousands of

outlets quickly, it can secure prime retail locations and establish brand loyalty before
rivals like McDonald’s or local chains expand further.

Additionally, rapid growth helps achieve economies of scale. Starbucks can spread its
high fixed costs (e.g., marketing, training, store design) over a larger number of outlets,
reducing average costs and improving competitiveness.

Finally, Starbucks’ consistent brand image aligns with the Chinese middle class’s taste
for Western culture, reducing the need to adapt its product significantly. This strengthens
brand equity and long-term market share.
3. One key benefit of Starbucks’ strategy of organic growth is access to a booming market.
China has a rapidly growing middle class with rising disposable incomes. These
consumers are increasingly willing to spend on Western brands such as Starbucks,
despite cheaper local cafés. This allows Starbucks to achieve high sales volume and
 revenue growth. Integrating with a chain of Chinese cafes, on the other hand, although
does provide access to market, does not allow for charging as high prices, since local
cafes are associated with affordable drinks. This means opening outlets, instead of
merging, potentially leads to higher added value and profits.
Moreover, Starbucks’ consistent brand image aligns with the Chinese middle class’s taste for
Western culture, reducing the need to adapt its product significantly. Conversely, integrating
with traditional cafes would entail adaptations to suit the already established local brand image,
which negatively affects brand equity, and the ability to obtain long-term market share, since
product features and quality may be inconsistent.
However, Starbucks’ internal expansion strategy does come with problems. Although high-
income consumers are rising, Starbucks’ higher charges compared to local cafes have raised
criticisms, negatively affecting Starbucks’ brand image and potentially sales. Integrating with
local café businesses would have solved this problem, but the merger would also have led to
cash-flow problems.
In conclusion, while internal growth in China helps Starbucks with sales and revenue growth,
brand equity, and long-term market share, it does raise a few eyebrows when charging higher
than local cafes. Integrating with local cafes, while helping to prevent doubts, would also be
costly and affect Starbucks’ brand quity and market share. Therefore, if Starbucks is willing to
compromise its consistent brand image and the potential of higher added value, integrating with
local cafes would be more suitable. However, at present, when the problem of customer doubts
can be solved by better consumer services and branding, organic growth would still be
favourable.
Organic growth is growth that comes from within the business rather than growth through
merger or takeover of a chain of Chinese cafés.
Starbucks’ strategy of organic growth in China, through opening 10 000 new cafés, allows it to
maintain full control over brand image and operations. By avoiding integration with a local
chain, Starbucks ensures that its global standards and customer experience remain consistent,
which is important for a premium brand. Organic growth also means Starbucks can expand
gradually, learning and adapting to the Chinese market while building customer loyalty.
Furthermore, it reduces the risks of culture clash or management conflict that can occur with
mergers or acquisitions.
However, organic growth is often slower and more costly than integration. Starbucks must
invest heavily in new outlets, recruitment, and training, while also facing criticism for high
prices in China. Expanding on its own may allow local competitors to capture market share
more quickly. If Starbucks had acquired a local chain, it could have benefited from an
established customer base, local knowledge, and existing infrastructure, which would reduce
risks and speed up growth.
In weighing both options, integration provides speed but at the risk of undermining long-term
brand equity, which is Starbucks’ main source of competitive advantage. Organic growth is
slower and more expensive, but it preserves the integrity of the brand and builds a sustainable
presence.
Therefore, organic growth is the more suitable strategy, since maintaining brand consistency
and premium positioning is ultimately more valuable than achieving rapid but potentially
unstable expansion through integration.
Activity 3.5
1. One reason is that the costs of cloth and other materials have been increased by
TC’s suppliers. This means that although more sales could have been obtained
from lower prices made possible by low-cost factories, potentially leading to
higher revenue, cost of sales has offset this.
Another reason is that clothing retailers have increased their bargaining power, forcing TC to
charge lower prices. Despite building low-cost factories, low prices have disenabled TC to
increase the gap between revenue and costs, resulting in failure to increase profit.
Although TC’s revenue has increased, rising material costs from suppliers have pushed up the
cost of sales, reducing gross profit margins. At the same time, recent mergers between major
clothing retailers have increased their bargaining power, forcing TC to accept lower selling
prices. As a result, even though sales volumes rose due to low-cost factories, the combined
effect of higher input costs and lower prices meant that profit margins were squeezed, leaving
overall profit unchanged.
2. One possible growth strategy for TC is to adopt backward vertical integration by
acquiring suppliers of cloth and materials. This would give TC greater control
over its input costs, helping to reduce its dependence on external suppliers who
have been raising prices. Controlling costs directly would improve profit
margins and help TC achieve more sustainable profitability.
Alternatively, TC could consider forward vertical integration by opening its own
retail shops. This would reduce reliance on large retailers who currently have
strong bargaining power and force TC to lower prices. Owning retail outlets would
give TC more control over pricing and branding, increasing profit margins.
Overall, backward vertical integration is the better option because TC already has
experience managing factories, meaning the transition would be less risky compared
to entering the retail sector. It directly tackles the main problem of rising costs,
which is the biggest barrier to profit growth. Therefore, gaining control over its
supply chain would be the most effective strategy for TC’s future growth.
EXAM-STYLE QUESTIONS
Essay Questions

1 a. Analyse two different ways in which business size may be compared. [8]

Business size can be compared using sales revenue. This method measures the total value of
sales made by the business over a period of time. A business with higher revenue can be
considered larger in terms of its market presence and financial scale. For example, Amazon has
far higher sales revenue than a local bookshop, making it the larger business. However, revenue
figures may be misleading in industries where margins are very low, as a high revenue does
not necessarily mean high profitability.

Another way to compare size is by number of outlets or locations. This gives an indication of a
business’s geographical spread and market reach. For instance, McDonald’s can be
considered larger than a small fast-food chain because it has thousands of outlets worldwide.
This measure highlights brand visibility and accessibility to customers. However, some firms
may have many small outlets generating little profit, while a single outlet could generate
significant revenue.

In conclusion, sales revenue and number of outlets are both useful measures but can give
different impressions. A balanced assessment of size should use more than one indicator to avoid
a misleading picture.

1 b. Evaluate the advantages and disadvantages to a mobile phone manufacturer of

internal growth. [12]

Internal growth means expanding through the business’s own resources, such as by launching
new models or entering new markets, rather than merging or taking over. For a mobile phone
manufacturer, this typically involves strategies such as investing in Research & Development
(R&D) to create new products, increasing production capacity, intensifying marketing
efforts, and entering new international markets. While this method offers significant benefits
like control and brand cohesion, it is also characterised by being slow and potentially leaving
the business vulnerable to more aggressive competitors.

A primary advantage of internal growth is the maintenance of strong control and a consistent
corporate culture. In an industry where brand identity and innovation are paramount, this is
crucial. A manufacturer like Apple has famously used internal growth to retain absolute control
over its iOS operating system, hardware design, and marketing, creating a seamless and premium
customer experience. This contrasts with external growth, where integrating a different company
can lead to cultural clashes and a dilution of the brand, which could alienate a loyal customer
base. Furthermore, internal growth allows for all strategic decisions—from sourcing
sustainable materials to setting labour standards in factories—to be centrally managed,
ensuring the company's ethos is upheld. Secondly, internal growth fosters the development of
sustainable competitive advantages through R&D and innovation. By investing heavily in its
own research facilities, a manufacturer can develop proprietary technologies that are difficult
for competitors to imitate. For instance, a company that internally develops a revolutionary
new battery technology or a unique camera sensor can protect this intellectual property through
patents, creating a powerful barrier to entry. This deep, internal knowledge accumulates over
time, building a core competency that is not easily purchased on the open market. While
slower than acquiring a tech start-up, this method often leads to more deeply integrated and
innovative final products that define a brand for years.

However, a significant disadvantage of internal growth is that it is relatively slow and time-
consuming. In the hyper-competitive mobile phone market, consumer trends and technologies
evolve rapidly. A strategy reliant solely on internal development may mean a company misses a
key market window. For example, while one manufacturer is spending two years internally
developing a foldable screen, a rival might acquire a specialist firm and launch a product within
months, capturing the first-mover advantage and brand recognition. This slow pace can be a
critical weakness, allowing more agile competitors to seize market share. Furthermore,
internal growth can be highly risky and expensive in terms of capital investment. Establishing
new production lines, funding long-term R&D projects, and building a distribution network from
scratch in a new country require immense financial resources with no guarantee of success.
The failure of a major product launch that was developed internally—such as Microsoft's
Windows Phone—can lead to colossal financial losses and a strategic setback from which it is
hard to recover. In contrast, external growth, while costly upfront, can provide immediate access
to established revenue streams and market share, thereby spreading the risk.

In conclusion, the choice of internal growth presents a clear trade-off for a mobile phone
manufacturer. Its principal advantages lie in preserving strategic control, nurturing a strong
brand identity, and building deep, sustainable innovation. These are vital in a sector where
brand loyalty and technological distinctiveness are key drivers of profit. However, these benefits
must be weighed against the pronounced disadvantages of speed and risk. The slow pace of
organic development is a major liability in a fast-moving market, and the required capital
investment is substantial. Therefore, the extent to which internal growth is advantageous
depends heavily on the manufacturer's market position and resources; a large, established
player like Apple can leverage it effectively, while a smaller challenger might find it necessary to
supplement internal efforts with external growth to survive and compete.
2 a. Analyse two roles of small businesses in any industry of your choice. [8]

One important role of small businesses in the food industry is to provide specialised and niche
products. Small bakeries or cafés often serve unique products tailored to local tastes, which
large chains may not be able to replicate. This allows them to fill market gaps and meet
consumer demand for variety.

Another role is that small businesses drive innovation. Because they are flexible, they can
experiment with new recipes, flavours, or customer service ideas without the bureaucracy of
larger firms. For example, small craft breweries introduced many new beer flavours that were
later adopted by larger beer manufacturers.

Together, these roles show that small businesses not only serve local communities but also
stimulate innovation in the wider industry.

2 b. Evaluate the likely strengths and weaknesses resulting from the family ownership of a
mobile phone retail business with ten shops. [12]

Family ownership is a business structure where control is held by members of a single family.
For a mobile phone retail business with ten shops, this model presents a unique blend of
potential strengths, such as long-term vision and strong culture, and significant weaknesses,
including potential nepotism and difficulties in raising finance, which could hinder its
competitiveness in a dynamic market.

A primary strength of family ownership in this context is the potential for a strong, personal
culture and high employee loyalty. In a retail environment, where customer service is a key
differentiator, family members often exhibit exceptional commitment and pride in the
business. This can translate into a more personalised service for customers, fostering loyalty
and building a strong local reputation against larger, impersonal chains like Carphone
Warehouse or network-operated stores. Furthermore, long-serving non-family staff may be
treated as part of the 'family,' reducing staff turnover and associated recruitment costs, which
is a significant advantage in the retail sector. Another major strength is the ability to pursue a
long-term strategic perspective. Unlike publicly-traded companies which are often pressured to
deliver short-term quarterly results for shareholders, a family-owned business can make
decisions focused on inter-generational sustainability. This could involve reinvesting profits
for gradual expansion to an 11th shop, or investing in staff training and store refurbishments
without the fear of shareholder dissent. This long-term view allows the business to build
sustainable value rather than chasing immediate, but potentially fleeting, profit opportunities.
However, a critical weakness of this structure is the potential for conflict between family and
business interests, which can lead to nepotism. Key management positions across the ten shops
might be filled by family members based on lineage rather than merit or expertise. Placing an
unqualified family member as a shop manager could demotivate more capable non-family
staff, lead to poor decision-making, and ultimately harm the performance of that outlet.
Furthermore, family disputes over strategy or succession can spill over into the business, creating
instability and hindering effective governance. Finally, family-owned businesses often face
significant limitations in accessing finance for growth. With only ten shops, the business may
wish to expand or invest in a sophisticated e-commerce platform to compete with online giants.
However, families are often reluctant to dilute their control by issuing shares externally.
Consequently, they may be limited to bank loans or retained profits, which can be insufficient for
major strategic investments. This financial constraint could prevent the business from achieving
the economies of scale or digital presence needed to compete effectively with large
competitors, potentially stunting its long-term growth and survival.

In conclusion, family ownership provides loyalty and stability, but the risks of poor
management and family disputes are significant. The impact will depend on whether the family
balances control with hiring professional managers.

3 a. Analyse two likely impacts on stakeholders of a business that grows through vertical
integration. [8]

Vertical integration occurs when a business expands by taking over a firm in either its supply
chain (backward) or its distribution channel (forward).

One impact is on shareholders, who may benefit from higher profits. For example, a
manufacturer buying a retailer can capture the retail margin, leading to increased earnings. This
improves shareholder returns and strengthens long-term competitiveness.

Another impact is on employees. Integration may lead to redundancies if duplicate roles are
cut, such as administrative or HR positions. However, it could also create opportunities for staff
to work in a larger, more diverse business. For instance, engineers in a manufacturing firm
might gain new roles in retail operations.

Overall, vertical integration tends to benefit shareholders, but employees may face both risks
and opportunities depending on how integration is managed.
3 b. Evaluate whether a web design business should grow organically or by means of
integration with another business. [12]

Growing organically means attracting more clients, hiring more designers, or expanding services.
The advantage is that it allows the business to retain full control of its creative culture and
maintain close client relationships, which are vital in web design. Organic growth also avoids the
financial and cultural risks of a merger.

By contrast, integration with another business, such as a digital marketing agency, offers faster
expansion and immediate access to new customers. This could help the web design firm
compete with larger rivals and offer a broader service package. However, integration risks
cultural clashes – for example, differences in creative vision or client management – which could
reduce the quality of service.

In evaluation, for a creative industry like web design, organic growth is usually the safer option,
as reputation, creativity, and trust are more important than speed. Integration may be
beneficial if the partner business is highly complementary and shares a similar culture, but the
risks are greater.

Activity 4.2

1. Analyse two benefits to the managers and other employees of the

company from having clearly stated company aims and objectives.

A clearly stated aim, such as Reuters' objective to "increase value for shareholders" and its
"ambitious growth objective," provides managers and employees with a unified sense of
purpose. For managers, this means they can make operational and tactical decisions that are
aligned with this overarching goal. For instance, knowing that cost-cutting is a key policy,
managers can confidently make decisions to streamline their departments, such as implementing
more efficient workflows. For employees, this clarity reduces ambiguity about what they are
working towards. When they see that new products like "electronic trading" are central to the
growth target, they can focus their innovation and daily efforts on developing and supporting
these key areas, leading to greater coherence and efficiency across the organisation.

Clearly stated objectives act as a motivator and a benchmark for performance. The case
study mentions a specific "growth target" which was exceeded with a sales increase of "over
6%." For employees, achieving such a clear and measurable target can be highly motivating,
providing a sense of accomplishment and a tangible contribution to the company's success.
This can be linked to performance-related pay or career progression opportunities. For
managers, these objectives are essential for performance appraisal. They can set specific,
measurable targets for their teams based on the company's aims, and objectively assess employee
performance. The success in reaching these targets, as evidenced by the predicted "40% increase
in profit," validates the efforts of both managers and staff, reinforcing positive behaviour and
justifying the difficult decisions made, such as the job cuts.

2. To what extent does the policy of increasing shareholder value conflict with other
objectives the business might have?

The policy of increasing shareholder value, a primary aim for Reuters as indicated by its focus
on rising share prices, can create significant conflicts with other potential business objectives.
However, as the case demonstrates, this conflict is not always absolute and can be managed to
a certain extent.

Arguments for a Significant Conflict (High Extent):

 Conflict with Employee Welfare and Job Security: The most direct conflict in the case
is with the objective of providing secure employment. The chief executive’s "policy of
cutting costs" directly led to "many jobs have been lost." Prioritising shareholder returns
(through cost reduction) came at the expense of employee job security, creating a clear
trade-off. A focus on short-term profit to please shareholders can conflict with long-
term investment in staff training and high wages.
 Conflict with Ethical and Social Objectives: An aggressive drive for profit and growth
might pressure the company to compromise on ethical standards. For example, in the
pursuit of new markets in countries like China and Russia, Reuters might face conflicts
between reporting news objectively (a core ethical objective for a news agency) and
avoiding stories that could upset the authorities in those lucrative markets, potentially
harming its reputation for impartiality.
 Conflict with Long-term Investment: Shareholders often desire quick returns, which
can conflict with the objective of long-term stability and growth. Investing heavily in
Research & Development (R&D) for future products, for instance, reduces short-term
profits. A company solely focused on maximising shareholder value might cut R&D to
boost immediate dividends, potentially harming its long-term competitive advantage.

Arguments for a Limited Conflict (Low Extent):

  Alignment through Long-Term Success: The case study suggests that increasing
shareholder value can be aligned with other objectives. The growth objective was
achieved through "new products and new markets," which not only increased profits for
shareholders but also likely secured the long-term future of the business and the remaining
employees' jobs. A profitable company is a more secure employer and can better afford to
invest in ethical practices.
 Shareholder Value as an Outcome, Not a Driver: In many modern businesses,
shareholder value is seen as a result of achieving other objectives, rather than the sole
driver. By focusing on customer satisfaction (through high-quality news and new products
like electronic trading) and operational efficiency (cost-cutting), Reuters
has generated the profits that have, in turn, increased shareholder value. In this view, the
objectives are complementary rather than conflicting.

Conclusion (Evaluation):

To a large extent, the policy of increasing shareholder value can and does conflict with other
business objectives, as starkly demonstrated by the job losses at Reuters. The pressure for
financial performance can create direct trade-offs with employee welfare, ethical
considerations, and long-term investment.

However, the extent of this conflict is not fixed. A skilled management team, as seen at Reuters,
can manage these conflicts strategically. By pursuing growth through innovation and market
development, they have created a scenario where shareholder value is
increased alongside business expansion. Therefore, while the potential for conflict is high, a
forward-thinking strategy that views shareholder value as a long-term reward for overall
business success can significantly mitigate the extent of the conflict. The key is to avoid a
short-termist approach that sacrifices all other objectives at the altar of immediate shareholder
returns.

Activity 4.3

1. STS plc’s mission statement is: “To become the country’s number one waste business and to
protect the environment for our children’s benefit.”

One benefit of this mission statement is that it provides a clear sense of direction by combining
business growth with environmental protection. This dual focus can help guide strategic
decisions — for instance, the company’s investment in waste-to-energy technology aligns with
the aim of environmental sustainability. Furthermore, such a statement can enhance brand
reputation among customers and investors who value corporate responsibility, potentially
leading to more contracts from environmentally conscious clients and higher long-term
profitability.
However, a limitation is that employees were not involved in creating the mission statement
and were not informed about it beforehand. As a result, they may feel detached from the
company’s goals and lack motivation to act in line with them. This could reduce the
effectiveness of the mission in influencing day-to-day behaviour and organisational culture.
Therefore, while the mission helps project a positive public image, it may not be fully effective
internally without employee engagement.

Overall, the mission statement gives strategic direction and reputation benefits, but its lack of
employee involvement weakens its internal impact on motivation and culture.

2. STS plc’s objective is: “We aim to maximise returns to shareholders through a strategy of
aggressive growth. Our objective is to expand every year.”

One problem with this objective is that it is not specific or measurable. The phrase “expand
every year” does not define what kind of expansion is intended — whether it refers to sales,
market share, or profits. Without a measurable target, managers cannot clearly assess
performance or determine if the company is meeting its goals. This can lead to confusion,
inconsistent decision-making, and difficulty evaluating success across departments.

A second problem is that the objective may be unrealistic and time-insensitive. Expecting
“aggressive growth every year” might not be achievable in a changing market or economic
downturn. If employees view the goal as unattainable, it could reduce motivation and encourage
risky strategies in pursuit of unrealistic results. Moreover, the lack of a clear timeframe
prevents the company from tracking progress effectively over specific periods.

In conclusion, STS’s objective lacks clarity and realism, which may lead to weak strategic
alignment and reduced staff motivation, ultimately harming performance despite the
company’s financial growth.

3. Success can be judged through financial performance, market position, and alignment
with strategic goals such as environmental sustainability.

From the data provided, STS plc appears financially successful. Revenue has doubled from
$20m in 2018 to $40m in 2021, while operating profit has increased from $3m to $20m — a
more than sixfold rise. This suggests improved efficiency and cost control, likely due to the
investment in labour-saving equipment and the waste-to-energy initiative, which reduces landfill
costs. The company’s market has also expanded from $120m to $180m, and STS’s revenue
has grown faster than the market, implying an increase in market share.

However, there are signs of limited non-financial success. The company’s environmental
mission is undermined by its decision to dump waste in old quarries, causing pollution. This
contradicts its stated purpose of “protecting the environment,” potentially damaging its
reputation. Furthermore, the decline in employees (from 1000 to 800) suggests overreliance on
automation, which may lower morale, especially since staff were excluded from developing the
new mission statement. Such internal issues could threaten long-term sustainability and
employee commitment.

Overall, STS plc has achieved substantial financial and operational success, meeting shareholder
objectives. However, its social and environmental performance has been weaker, indicating that
the business is partially successful — strong in profit growth but less so in fulfilling its
broader ethical and cultural aims.

Activity 4.4

1. One benefit of setting objectives is that it provides direction and focus for the business. By
agreeing on clear targets, such as doubling revenue within three years, June and Will can align
their decisions and resources toward a shared goal. This helps guide their marketing, pricing,
and investment choices. It also reduces the likelihood of conflict between them since both can
monitor progress against agreed measures of success.

Another benefit is that objectives allow the owners to measure performance and motivate
employees. For example, aiming for a 20% annual sales growth or a $40,000 profit target gives
them clear benchmarks for evaluating results. Employees may also be more motivated when
they understand what success looks like and can see progress toward achieving it. This can
increase productivity and accountability, leading to improved overall performance.

In summary, objectives help June and Will make strategic decisions more effectively and
provide a measurable basis for motivating staff and assessing success.

2. The final agreed objective is to open a new salon, double revenue within three years, and then
aim for a profit of $90,000 per year after five years.

The objective is specific, since it clearly identifies what the business wants to achieve —
expansion through opening a second salon and a measurable profit target. It is also measurable,
as the revenue and profit goals can be tracked using financial statements, allowing the owners to
determine whether they are meeting their targets.

The objective appears achievable given that the first salon has survived three difficult years and
built a good customer base. Their experience in managing one salon could help them operate a
second successfully. However, the new branch could bring additional challenges, such as staff
management and marketing expenses, which may make doubling revenue within three years
difficult to achieve.
The objective is realistic in that the business has already covered its costs and proven
sustainable, but the expansion plan may stretch their financial and managerial capacity. It is
time-bound, as clear timeframes are provided (three and five years), allowing for progress to be
reviewed.

Overall, the objective mostly meets SMART criteria — it is specific, measurable, and time-
bound, but its achievability and realism depend on how effectively June and Will manage the
risks of expanding to a new location.

Activity 4.6

1. Business ethics: moral guidelines that determine decision-making; code of conduct: rules and
guidelines on staff behaviour.

Benefits for SCG:

- Reputational Enhancement and Stakeholder Trust: A public commitment to ethics

builds a strong, trustworthy brand. This attracts customers, investors, and reliable
business partners who value integrity, giving SCG a competitive advantage in the long
term.

- Sustainable Profitability and Risk Management: The principle of "making business

profits in ways that avoid exploitation" encourages a long-term, sustainable business
model. The explicit rules against bribery and political alliances act as a risk management
tool, legally protecting the company from fines, scandals, and reputational damage.

- Consistent Decision-Making Framework: As SCG expands internationally, the code

provides a clear framework for managers facing ethical dilemmas. It ensures decision-
making is aligned with corporate values, not just local customs, creating a unified and
principled global operation.

Benefits for Employees:

- Moral Guidance and Empowerment: The code provides clear guidance and company-
backed authority for employees to refuse unethical requests (e.g., for bribes). This
empowers them, reducing moral stress and protecting them from pressure to
compromise their personal ethics.

- Protection and Fair Treatment: The "non-discriminatory treatment" clause ensures a

fair, respectful, and safe working environment for all staff, protecting them from
exploitation, harassment, and unfair practices.

- Enhanced Morale and Unified Culture: Working for an ethical company fosters
employee pride, loyalty, and engagement. The code also helps integrate a diverse,
international workforce into a single corporate culture with shared values.
 2. Answer: No, SCG should not use unethical methods like bribery, even in countries with
weak legal controls.

Justification:

1. Upholding Core Values and Long-Term Strategy:

SCG's entire identity is built on "honesty and fairness." Compromising these core principles for
short-term gain would fundamentally damage its brand and corporate culture. Trust, once
lost, is incredibly difficult to regain. A long-term business strategy based on quality, reliability,
and ethical practice is more sustainable than one dependent on corruption.

2. The Significant Risks Outweigh Short-Term Gains:

While bribery might seem necessary to "win" a contract, it creates immense risks:

 Legal Liability: Many home countries (e.g., the US and UK) have laws like the Foreign Corrupt
Practices Act (FCPA) that prosecute companies for bribery abroad, regardless of local laws.
 Reputational Catastrophe: If exposed, the scandal could lead to a global loss of reputation,
contract cancellations, and investor withdrawal.
 The Slippery Slope: Engaging in bribery once creates an expectation, entrapping the company
in a continuous cycle of corruption and extortion.

3. Ethical Imperialism vs. Ethical Pragmatism:

The scenario presents a false dichotomy. SCG does not have to choose between either
abandoning its principles or failing in the market. The third, and correct, option is to compete on
its own ethical terms. It can leverage its strengths:

 Marketing its reputation for quality and reliability.

 Emphasising its transparent and fair contracting processes.
 Building relationships with partners who value long-term, stable cooperation over corrupt, short-
term deals.

Conclusion: While the pressure to conform is real, succumbing to it is both ethically wrong and
strategically foolish for a company like SCG. Upholding its code of conduct is essential for its
long-term global survival, reputation, and success.

EXAM-STYLE QUESTIONS

Essay Questions

2.
a. One way ethics may influence business objectives is by encouraging a focus on social
responsibility rather than purely profit maximisation. A business that values ethical
behaviour may set objectives to reduce pollution, improve working conditions, or support
fair trade suppliers. For example, a cosmetics company might aim to eliminate animal testing,
even if this increases costs and reduces short-term profits. This shows how ethics shape
objectives towards sustainability and reputation rather than only financial gain.
A second way is that ethics may influence day-to-day business activities, such as marketing,
sourcing, and employee relations. For instance, a retailer might choose to avoid misleading
advertising or refuse to source cheap goods from factories with poor labour conditions. Although
this can raise costs or limit supplier options, it helps maintain customer trust and brand image
in the long run.
Overall, ethical considerations can redirect both business goals and operations towards long-
term integrity, even if they reduce short-term financial performance.

b. A clear mission statement can help a large retail business succeed by providing direction and
unity. It communicates the business’s core purpose and values to employees, helping thousands
of staff across different branches work towards common goals such as excellent customer
service or sustainability. This can enhance brand consistency and strengthen the firm’s
reputation, which is vital in a competitive retail market.
Moreover, a mission statement can motivate employees by giving their work meaning beyond
profit. For example, a retailer like John Lewis emphasising “quality, service, and value” may
inspire staff to deliver higher standards. It also helps management make strategic decisions —
such as whether to expand online or focus on ethical sourcing — that align with the company’s
purpose.
However, success does not depend only on having a mission statement. Many businesses fail
despite having one because the statement is too vague or not reflected in actions. Practical
factors such as efficient supply chain management, pricing strategy, customer experience, and
adaptability to technology are often more crucial. For instance, a clear mission will not save a
retailer if it cannot compete with rivals on convenience or cost.
In conclusion, a clear mission statement contributes to a large retailer’s success by aligning goals
and motivating employees, but it is not the sole determinant. Success ultimately depends on
how well the mission is implemented through effective management and operations.

Data response Questions

1.
a. i. Expansion and dominance.
ii. (Business) strategies are the long-term plans of action of a business.
b. i. 1800000
ii. One reason is lack of experience in markets. The Indian market indicates ‘uncharted territory’
for Citroen, since it occurs in ‘recently announced new strategies’. Lack of experience meets
with legal bureaucracy, which increases costs. This when combined with the inevitable trial and
error in market research to understand customers’ demand in a foreign market makes the
objective of 45% of cars produced be sold outside Europe, not to mention that Peugot has failed
once in the US market, overly ambitious and hard to reach.
c. SMART objectives prove to be effective guidelines that help Peugeot Citroen achieve its
ambitious aims regarding profit margin, sales, and branching into foreign markets. By agreeing
on clear objectives, such as reaching 45% of sales outside Europe, the owners can align their
decisions and resources toward a shared goal. This helps guide their marketing and pricing
choices, like entering the Indian market for the first time, re-entering the US market, and giving
clear sales budgets to each Peugot dealer, for example.
Another benefit is that SMART objectives allow the owners to measure performance and
motivate employees. The impact of recently announced objectives is frequently communicated
with employees, which provides the owners a benchmark for assessing whether a decision is
efficient and ethical. This also makes employees feel involved in working towards common
goals, which increases morale and motivation.
2.
b.
i. $21.75m
ii. Increasing shareholder value, as SAFC aims at, means pursuing strategies to increase returns
to shareholders. This is achieved by increasing profit, since more dividends can be paid to
shareholders once costs and retained profits are subtracted. This leads to higher share prices,
benefiting shareholders’ overall wealth.
c. A suggested mission statement of SAFC is ‘Responsibly produced and sustainable wood for
future generations.’, yet is objectives do not allign with the statement, as the owner clearly stated
‘its operations are focused on profit not responsibility or sustainability’. The company shows
little to no environmental concern when showing satisfaction with maximizing profit at the
expense of lack of responsibility for increasing the rate of tree felling by 50%. This is unethical,
not only in the sense that the environment is seveerely affected, but also in that customers are
misled by the polished mission statement, and hence their concerns for the environment are not
taken into consideration.
In addition, for profit maximizing, SAFC resorts to using child labour. The fact that pressure
groups cannot get to them means that these children and not protecteted against exploitation,
since they do not have the financial power to protect themselves. SAFC shows no signs of being
in a moral dilemma, since the owner is pleased with the ‘progress’, and hence will likely
continue to do so.
d. SAFC Plc as a business in the wood manufacturing industry would have ethical strategies such
as planting additional trees after cutting some down, or not using child labour.
Such objectives help enhance the business’s reputation, as consumers are more and more
environmentally and ethically conscious. Although SAFC does not directly deal with customers,
as a plc aiming for higher sales and possibly expansion, it is subject to attention and public
scrutiny. This means environmentally damaging activities that do not allign with the polishly
stated mission statement, or exploitation of child labour will directly affect sales and
profitability. In addition, ethical principles that avoid exploitation and environmental damage
encourage a long-term, sustainable business model that acts as a risk management tool,
protecting the company from fines and legal liability. This possibly leads to sustainable business
success.
However, such stategies do not ensure business success. Ethical strategies often entail costs and
are at the expense of immediate profit maximisation. For example, not using child labour and
implementing a campaign of planting additional trees after cutting down some of them are much
more costly than what the company is doing. The market sometimes get competitive and such
straegies may hinder the quick growth needed to compete and ultimately, survive.
In conclusion, ethical strategies can only lead to sustainable success, and cannot ensure success.
Success depends on whether SAFC can compete on its own ethical terms by marketing its
reputation for quality and reliability, emphasising its transparent and fair recruitment and
production processes, building relationships with partners who value social benefits.
3.
a.
i. a specific foundation to business strategies
ii. corporate social resonsibility (CSR) is the responsibility taken by businesses for the impact
their activities might have on the environment
b. Kenya Re currently pursues a CSR objective, but the dynamic and constantly growing market
it is in may force the business towards profit maximization to remain competitive. That is when
its objectives on increasing return on capital and revenue may override those on professionalism
and ethics.
In addition, competition may bring about a shift in Kenya’s objective, from growth to survival.
As the industry is growing rapidly, it is hard to aim for dominance.
c. The objective of increasing return on capital helps Kenya utilize its resources, hence
increasing profitability. This helps the business stablize its established position in a highly
competitive industry. Moreover, this is to the benefit of shareholders and empleyees
(shareholders get more dividends, employees may share profit), which increases morale, leading
to overall efficiency.
Promoting professionalism and ethics in the insurance industry helps Kenya establish a brand
image that sets it apart from competitors who focus purely on profit. This leads to high long-term
sales, leading to sustainable growth. In addition, this protects Kenya from legal liabilities, saving
costs and avoid disruptions in production.
d. In a highly competitive market, CSR may prove an immediate disadvantage since it hinders
the Kenya from maximizing immediate profit. High costs involved in environmental protection
and ethical issues may squeeze profitablity, making Kenya Re unable to meet its ROC and
revenue objectives and maintain its established position in the market.
However, CSR contributes to sustainble growth. The job opportunities given to disabled people
establishes a brand image that attracts long-term sales. CSR also protects the business from legal
liabilities, leading to sustainable growth.
In evaluation, while CSR may be an immediate disadvantage, it fosters long-term and sustainable
growth. Therefore, it is advisable that Kenya Re set this objective, while managing it effectively
to reduce costs.
Activity 5.2

1. Analyse three ways in which some UK construction companies are not meeting
their responsibilities to building workers.

1. Low pay and exploitation

Some UK construction companies employ Eastern European workers because they are willing to
accept lower wages than local workers. This means businesses may not be paying fair or living
wages, exploiting workers’ financial needs to reduce costs. Such behaviour ignores ethical and
possibly legal responsibilities to provide fair compensation for labour. This can lead to
dissatisfaction and resentment among employees.

2. Lack of job security and benefits

The case states that permanent contracts and pension schemes are rarely offered. This means
workers are treated as temporary labour even when they are vital to long-term projects. Denying
benefits such as pensions or health insurance shows a failure to meet social responsibility
obligations, which include providing stability and supporting employees’ long-term welfare. It
also reflects poor ethical standards within the business.

3. Unsafe working conditions

With around 150 building workers killed each year, many companies fail to maintain proper
health and safety measures. Businesses are legally required to ensure workers’ safety by
providing training, protective equipment, and supervision. Neglecting this responsibility risks
employees’ lives and violates workplace health and safety regulations.
Analysis summary:
By underpaying staff, denying them secure employment, and failing to protect their safety, these
companies prioritise cost savings over employee welfare, undermining both ethical and legal
responsibilities.

2. Evaluate the likely long-term impact on construction businesses as a result of

failing to meet responsibilities towards employees.

Failing to meet responsibilities can damage reputation and public image in the long term.
News of poor safety records or exploitation of migrant workers can spread quickly through the
media, discouraging potential clients, investors, and skilled employees from working with or for
the company. This can reduce competitiveness, especially when public contracts favour firms
with good ethical reputations.

Additionally, low morale and high turnover are likely consequences. Workers who feel unsafe,
undervalued, or underpaid are less motivated and may leave once better opportunities arise. High
employee turnover increases recruitment and training costs, reducing productivity. Poor
motivation may also cause lower quality of work or more on-site accidents, further harming
efficiency.

There may also be legal and financial consequences. Breaching safety laws or employment
regulations could lead to lawsuits, fines, and compensation claims. Over time, these costs could
outweigh the short-term savings gained from cutting corners on employee welfare.

However, some construction firms might benefit in the short term from lower wage costs,
making them more competitive in tenders and allowing them to offer cheaper prices. Yet this
advantage is unsustainable. In the long term, government regulation, labour shortages, and
reputational pressure will likely force companies to adopt more ethical and responsible
employment practices.

Conclusion:
In the long term, failing to meet responsibilities to employees is likely to harm construction
businesses through reputational damage, legal risks, and low productivity. Sustainable success
depends on maintaining safe conditions, fair pay, and job security, ensuring loyal and skilled
employees who support the firm’s growth and reputation.

Activity 5.3

1. Analyse how Shell Foundation schemes are likely to impact on stakeholders.

The Shell Foundation’s community projects, such as the Flower Valley project in South Africa,
are likely to create positive impacts on multiple stakeholder groups.

Employees:
These projects can improve employee morale and motivation. Workers at Shell may feel proud
to be part of a socially responsible company that actively supports low-income communities and
environmental sustainability. This can lead to higher productivity, lower absenteeism, and
stronger loyalty.

Local communities:
Communities directly benefit through improved employment opportunities and skill
development. For instance, the Flower Valley project created jobs for 80 workers and provided
education and training for adults and children. This reduces unemployment and supports social
development, helping Shell build trust and goodwill in the region.

Customers:
Shell’s CSR activities can strengthen its brand image among consumers who value ethical and
sustainable companies. This positive reputation can increase customer loyalty and attract
environmentally conscious consumers, potentially boosting sales of Shell’s main products.

Suppliers and partners:

Suppliers may benefit from long-term and fair trade arrangements, as seen when Marks &
Spencer buys fynbos flowers at fair prices. This encourages sustainable supply chains and
enhances Shell’s reputation as a responsible business partner.

Analysis summary:
By supporting such schemes, Shell is improving its relationships with employees, customers, and
communities. Although these projects may involve significant costs, they build long-term
stakeholder trust and enhance Shell’s social licence to operate globally.

2. Evaluate the likely impact on Shell’s shareholders of the company’s decisions

that accept its responsibilities to stakeholders.

Accepting responsibilities to stakeholders through CSR programmes can have both positive and
negative implications for shareholders.

Positive impacts:
In the long term, CSR initiatives can improve Shell’s brand reputation and corporate image.
Consumers are increasingly aware of ethical and environmental issues; therefore, a company
seen as socially responsible may attract more customers and face fewer public relations crises.
This improved image can translate into greater customer loyalty and potentially higher sales and
profits, benefiting shareholders through increased dividends and share value.

Moreover, strong stakeholder relationships reduce business risk. Projects like the Flower Valley
scheme enhance community relations, lowering the likelihood of protests or opposition to Shell’s
operations in developing countries. This creates a more stable environment for long-term growth
and reduces legal and regulatory risks, which is in shareholders’ interest.

Negative impacts:
In the short term, CSR activities can increase costs and reduce profitability. Funding education
centres, training programmes, and environmental projects requires substantial investment that
may not yield immediate financial returns. Some shareholders focused on short-term dividends
might see this as a waste of resources or reduced efficiency.

There is also a risk that shareholders may perceive CSR as a distraction from Shell’s core
business of oil and energy production, especially if profits fluctuate. This could lead to
dissatisfaction or even a fall in share price if investors lose confidence in the company’s strategic
focus.

Evaluation:
Overall, while CSR may initially reduce profits due to increased expenditure, the long-term
benefits of enhanced reputation, stronger stakeholder trust, and lower risk of conflict likely
outweigh short-term financial drawbacks. For long-term shareholders, Shell’s socially
responsible behaviour strengthens the company’s sustainability and competitive advantage,
leading to more stable and potentially higher returns over time.

Conclusion:
Accepting stakeholder responsibilities benefits shareholders by securing Shell’s long-term
growth and reputation, though it may slightly reduce short-term profitability. The impact
depends on whether investors value ethical leadership and sustainable business practices.

Activity 5.4

1. Analyse two stakeholder conflicts resulting from this coal mine project.

Conflict 1 – Government vs. Local Residents and Farmers:

The Bangladeshi government aimed to create jobs and generate cheaper electricity by opening
the coal mine, which could have contributed to national economic growth and improved energy
security. However, this objective directly conflicted with the interests of farmers and local
residents.
Up to 130,000 people would have been displaced from their homes, losing farmland and
livelihoods. The government’s economic priorities clashed with the social and ethical concerns
of residents whose communities and way of life were at risk. This demonstrates a classic
stakeholder conflict between national development goals and local human costs.

Conflict 2 – Environmentalists vs. Business/Investors:

Investors and the Asian Development Bank were interested in funding the coal project for
financial returns and to meet rising energy demand. Conversely, environmentalists and
conservationists opposed the project because it would destroy a mangrove forest — a World
Heritage Site — and divert a river. This conflict highlights the tension between profit-driven
objectives and environmental sustainability.
While investors wanted economic gain, environmental groups prioritised long-term ecological
protection, arguing that the destruction of natural habitats would cause irreversible damage.

Analysis Summary:
Both conflicts reflect the challenge of balancing economic development with social and
environmental responsibility. The government and investors sought short-term growth, while
communities and environmentalists focused on sustainability and social justice.

2. Evaluate the decision by the government to stop this project.

The Bangladeshi government’s decision to stop the coal mine project can be seen as socially and
environmentally responsible, but it may also have economic drawbacks.

Arguments in favour of stopping the project:

The decision protected local people’s livelihoods and the environment. Over 100,000 people
avoided displacement, and a valuable mangrove ecosystem — which acts as a carbon sink and
coastal protection barrier — was preserved. This helped maintain biodiversity and supported the
country’s long-term sustainability goals.
Stopping the project also improved Bangladesh’s international reputation. Responding to global
environmental pressure and public protests demonstrated that the government listens to citizens
and values human rights. This could strengthen political stability and attract ethical investment in
the future.

Arguments against stopping the project:

On the other hand, halting the project resulted in the loss of potential economic benefits,
including thousands of jobs and cheaper electricity production. Bangladesh faces energy
shortages, and this project could have supported industrial development. In addition, foreign
investors may view the government as unpredictable or risk-averse, discouraging future
investment in major infrastructure projects.

Evaluation:
In the short term, the decision limits industrial growth and employment, but in the long term, it
prevents social unrest and environmental degradation. Prioritising food security, farmland
preservation, and sustainability supports a more stable and inclusive economy.
The government could instead explore renewable energy alternatives, such as solar or wind, to
achieve energy independence without compromising environmental goals.

Conclusion:
Overall, the government made a balanced and ethical decision that prioritised people and the
planet over short-term profit. While it may slow economic progress temporarily, it strengthens
Bangladesh’s long-term sustainability and social harmony — essential for future development.

Activity 5.5:

1.

- customers:

+ roles:
• to purchase goods (palm oil)

• to provide revenue from sales of palm oil, which allows the business to function and expand

+ responsibilities:

• to be honest – to pay for palm oilbought when requested

• not to steal
• not to make false claims about the quality of palm oil

- Employees:

+ roles: to provide manual and other labour services (palm oil extraction, production, sales) to
the business, in accordance with the employment contract, to allow goods and services to be
provided to customers
+ responsibilities:
• to be honest
• to meet the conditions and requirements of the employment contract (skills in palm oil
extraction and production)
• to cooperate with management in all reasonable requests
• to observe the ethical code of conduct (make palm oil production sustainable, with fair
treatment for all local populations affected by it)
2.
- customers:
+ offered niche products and personalized services -> satisfaction
+ potentially higher prices (economies of scale)

- Employees:

+ job losses -> resistance

3.
- conflict:
+ Government vs. Local Residents: Governments have encouraged palm oil production as it is a
major export product, while residents are against this, as it has led to massive areas of
deforestation with a resulting negative impact on climate change, substantial loss of wildlife
habitat, even endangering the orangutan, and people displaced from their native land
+ Customers vs. Local residents: palm oil production benefits customers of its products, and
mass production of it allows for “the lowest prices possible”. However, this leads to housing and
environmental problems that residents are against.

- Expansion in Malaysia with social responsibility (make oil production sustainable, fairl
treatment for all local populations affected) in mind would potentially translate into better
reputation, and alleviate residents’ resistance
- However, this does not immediately resolve the conflict since the negative impacts on
residents are already made. Moreover, branching into a new market entails risks and
uncertainties that force the business to maximize product, hence everything may prove
fruitless
- In conclusion, while expansion in Malaysia may alleviate the tension between
stakeholder groups, this does not completely solve the problem. It is advisable for the
business to have CSR objectives, so that its reputation can be redeeemed, and the benefits
of all stakeholder groups can be balanced.