Practise Edexcel Business questions on organic and inorganic growth, applying scale, integration and finance evidence to judge expansion decisions.
Extract A
What we do at Bosch
Bosch is a German engineering and technology business that has over 420,000 employees worldwide. Its aim is to develop products that are 'Invented for life' to improve the quality of living for its customers.
Bosch has a wide product portfolio. Its consumer goods division manufactures household goods such as refrigerators, dishwashers, coffee makers, vacuum cleaners and garden tools.
Bosch's mobility division supplies parts and services to the automotive market. This earns Bosch the majority of its revenue. It is a market leader in the supply of car parts and software systems and has numerous manufacturing and engineering factories located around the world. Bosch is increasing its investment in the design of parts and software systems for electric cars and electric bikes, which are growing markets.
Bosch has announced that €950m will be invested in an engineering and manufacturing factory in Suzhou, China. The factory will create new jobs to make parts for electric cars.
Extract B
Bosch has exceeded its sales forecasts despite many challenges over the last few years such as the global health crisis, supply chain problems and increasing costs of raw materials.
Selected financial data for Bosch 2021 and 2022
Extract C
Investment in innovation
Bosch states that 'one of its biggest strengths is its employees with their expertise, ideas, creativity and commitment.' The basis of the future growth of the business is its innovation. In 2022 it employed 76,000 employees worldwide in research and development (R&D) and spent €6bn developing new products.
Extract D
Ownership of Bosch
Unlike many large businesses, Bosch has remained a private limited company rather than converting to a public limited company. It has a unique form of ownership. Ownership is shared between the Bosch family and a charitable foundation that does not have voting rights in the business. Most of the profits are either invested back into the business to build for future growth or donated to charitable causes.
Bosch announced that €950m will be invested in an engineering and manufacturing factory in Suzhou, China.
Discuss if this expansion programme is likely to result in internal economies of scale for Bosch.
Extract H Spotify's growth When Spotify launched its music streaming service in some European countries on 7 October 2008, few people would have thought that this unknown Swedish-based start-up would eventually grow into the world's most popular music platform. In 2008, music streaming was still in its infancy, accounting for a small fraction of global music revenues. Eventually, Spotify's early entry into the music streaming market would be a move that would pay off. Spotify continues to be the market leader with a market share of 30\% followed closely by Apple Music with 25\% and Amazon Music with 12\%. As Figure 1 shows, Spotify did not grow quickly at the start. However, by 2013 the streaming pioneer had roughly 30 million monthly active users and 8 million premium subscribers. Monthly active users are listeners who are able to enjoy music for free but it includes advertisements. Premium users have access to music streaming with no advertisements included. Since then, Spotify's numbers have continued to steadily grow, reaching 299 million monthly active users and 138 million premium subscribers by the end of June 2020. Spotify went public two years ago and is currently valued at almost $50bn. For the three months ending 30 June 2020, it reported an operating loss of €167m on €1.89bn in revenue, most of which came from premium subscriptions. Spotify's worldwide monthly users (millions)
Figure 1
Extract A adapted from: https://www.bramwellbrown.com/pages/about-us and https://www. bramwellbrown.com/collections/weather-clocks/products/weather-clock-small
Extract B adapted from: https://beta.companieshouse.gov.uk/company/08504514/filing-history
Extract C adapted from: interview with Rob Bramwell, co-founder of Bramwell Brown, August 2020
Extract D adapted from: https://www.bramwellbrown.com/pages/about-us
Extract E adapted from: https://www.bramwellbrown.com/pages/design-intellectual-property
Extract F adapted from: https://www.forbes.com/sites/johnkao/2020/06/17/reimagine-redesign- reorganize--the-starbucks-theorem-for-transformation/\#196ad82df72a and https://www.businesswire.com/ news/home/20200728005948/en/Starbucks-Reports-Q3-Fiscal-2020-Results
Extract G adapted from: https://www.businesswire.com/news/home/20200728005948/en/Starbucks- Reports-Q3-Fiscal-2020-Results
Extract H adapted from: https://www.statista.com/chart/15697/spotify-user-growth/
Evaluate whether organic growth is the best method for Spotify to use when
planning for further expansion.
Extract F India's top five airlines winter season (October 2021 to March 2022)
Extract G India's ruthless aviation sector prepares for consolidation After years of fierce price competition between Indian airlines, the merger of Air India with Vistara will shake up the fast-growing industry. Subject to approval by the competition regulators, the horizontal merger is set for completion in March 2024. The new business will be known as Air India. It will have 218 aircraft serving 38 international and 52 domestic routes. The merger will give Air India a much greater presence in major cities, doubling capacity in Delhi, its main base. It plans to overhaul existing aircraft and purchase new ones. Currently both airlines are unprofitable. The deal will challenge the dominance of the country's biggest domestic flyer IndiGo. It controls India's domestic aviation market and analysts say it will be difficult to remove. "Even eating into 2% of IndiGo's market share will call for a lot of aggressive market strategies," said Jitender Bhargava, a former executive director of Air India. According to Indian Government estimates, India's civil aviation market is worth around $900m and is expected to grow to over $4bn by 2025. Experts suggest that Air India and IndiGo will expand to claim about half of India's international market which is currently dominated by foreign airline carriers.
Extract A British Airways: a cash cow British Airways (B A) is the second largest airline in the UK and is part of a larger group of airlines. BA merged with Iberia in 2011 to create International Consolidated Airlines Group (IAG), which has since taken over Aer Lingus, as well as Vueling and Level, two low-cost airlines.
Financially, IAG outperforms Europe's other big airlines. BA is the main reason for this. Its return on capital has grown and it provides the largest share of IAG's operating profits.
Extract B Selected data for an Airbus A350-1000 aircraft
Extract C IAG buys Air Europa for €1bn IAG is spending €1bn to buy Air Europa, another Spanish airline. Air Europa serves 69 destinations. Air Europa is the third largest Spanish airline after Iberia and Vueling - both of which are already owned by IAG.
In 2018, Air Europa made an operating profit of €100m. It had a revenue of €2.1bn from 11.8 million passengers. It serves many niche destinations in South America including Paraguay, Colombia and Iguazú on the border of Argentina and Brazil.
Extract D Angry passengers as tens of thousands affected by systems failure In August 2019, BA had many angry passengers as more than 500 flights were cancelled or delayed as a result of an IT systems failure. It affected the travel plans of tens of thousands of people with holiday and business plans travelling from London's Heathrow, Gatwick and City airports. This was not the first time BA has had IT failures.
In 2017, 75,000 passengers were stranded around the world when BA was forced to cancel more than 700 flights over three days due to IT systems failures. A data breach in 2018 affected 400,000 customers and led to a fine of £183m. BA claimed it regularly carries out detailed risk assessments of its IT systems and IT infrastructure. It is dependent on IT systems for many of its key business processes.
Extract E BA to offset domestic flight emissions from 2020 BA will offset all domestic flight emissions from 2020, after its owner IAG became the first airline group to commit to net zero-carbon flying by 2050. IAG is responsible for about 3% of global aviation's emissions. Offsetting allows businesses to invest in environmental projects to balance out their own carbon footprints.
Chief executive of IAG, Willie Walsh, said that the company would reach the net zero-carbon target through offsetting but it already has a strong environmental policy that significantly reduces its environmental footprint by recycling and cutting waste from aircrafts.
Walsh said B A is replacing older, less fuel-efficient aircraft. He said the new Airbus A350-1000, which has just entered service on the transatlantic route to Toronto, would typically use 43 instead of 70 tonnes of jet fuel to carry a similar number of passengers.
Discuss the possible problems that might arise from IAG's takeover of Air Europa.