Practise Edexcel Business questions on entering global markets and expanding abroad, applying market evidence, resources and risk to a recommendation.
Sources for use with Extract A Among signs of market saturation, streaming platforms seek new growth The global market for on-demand streaming platforms has shown signs of saturation for some time, forcing businesses to devise new strategies to stop the loss of subscribers and boost revenue and growth. At the start of 2022, Netflix, the market leader, had 221.6 million subscribers. However, by September 2022 it had lost 1.2 million subscribers. Nearly a dozen major streaming platforms, with Netflix and Disney+ in the lead, are locked in a fierce battle for subscribers. Experts predict that some platforms will have to merge or launch cheaper subscriptions with advertising if growth is to happen. One merger has already taken place, with HBO Max merging with Discovery+. It will start operating in the summer of 2023 as a single streaming service with around 100 million subscribers worldwide. Extract B Outsourcing can be a solution to Australia’s skills crisis Australia has a skills shortage problem that is the worst ever seen. There is a shortage of people as well as skills. This is where outsourcing can help, it provides people to fill the gaps. In Australia, more than 30,000 businesses have outsourced work to different countries. In Australia the outsourcing industry is worth $35bn and growing at 3.3%. This shows that there is a huge demand for it and not just in the traditional areas of finance, telecommunications and banking but now other areas of the service industry. In 2022 we work in a global world where work teams are connected by technology and leadership. Smart businesses will use this to their advantage. Outsourcing is one solution to the current skills crisis – but only if it is done well.
3 Extract C Malaysia’s 2021 Foreign Direct Investment (FDI) value is the highest since 2016 In 2021 FDI into Malaysia increased to RM* 48.1bn. This compared to RM 13.3bn in 2020 and was the highest since 2016, according to the Malaysian Department of Statistics. The manufacturing sector received the largest inflow of FDI with RM 29.5bn in 2021. The second highest was the services sector, mainly in financial services, followed by the mining sector. RM 22.5bn of the FDI came from other Asian countries, mostly from Singapore, Japan and the Republic of Korea. In 2021 the return on investment for FDI companies increased from RM 0.06 to RM 0.13 for every RM 1 of investment. * RM = Malaysian Ringgit
Explain one disadvantage for a business of operating in a saturated market.
Knowledge 1, Application 2, Analysis 1
Knowledge
1 mark for identifying a disadvantage, e.g.:
Application
Up to 2 marks for contextualised answers, e.g.:
- Over a dozen companies are competing for streaming business (1)
- Netflix has lost 1.2 million subscribers in the first nine
months of 2022 (1)
Analysis
1 mark for developing the disadvantage, e.g.:
- In order to increase sales or prevent loss of existing
customers price may have to be reduced and/or increased spending on promotion. Both reduce profitability (1)
Assess the advantages of outsourcing for a business wanting to improve cost
competitiveness.
Indicative content guidance
Answers must be credited by using the level descriptors (below) in line with the general marking guidance. The indicative content below exemplifies some of the points that candidates may make but this does not imply that any of these must be included. Other relevant points must also be credited.
Knowledge, Application, Analysis, Evaluation - indicative content
- Outsourcing means moving a business function or department to a specialist external provider which may or may not be overseas
- By reducing costs, profitability can be increased which may enable prices to be reduced and improve competitiveness
- Skilled workers can be found that may not be available at home, this is the case with Australia in Extract B
- Such workers may be specialists and offer a more skilled and efficient service than might be case within the business itself
- By outsourcing some support functions, the business can then
concentrate on its core competences
- Outsourcing can improve speed, flexibility and quality of the product or service
- Modern technology has made it much easier for a business to be run from different countries
- There may be communication problems arising as a result of language or
cultural differences
- It can be difficult to oversee events or guarantee quality of output from a
distance
- A business may risk losing its own identity and corporate culture if it relies too much on others
Level
Mark
Descriptor
0
A completely inaccurate response.
Level 1
1-2
Isolated elements of knowledge and understanding - recall based.
Weak or no relevant application to business examples.
Generic assertions may be presented.
Level 2
3-4
Elements of knowledge and understanding, which are applied to the business example.
Chains of reasoning are presented, but may be assertions or
incomplete.
A generic or superficial assessment is presented.
Level 3
5-8
Accurate and thorough knowledge and understanding, supported throughout by relevant and effective use of the business behaviour/context.
Analytical perspectives are presented, with developed chains of reasoning, showing cause(s) and/or effect(s).
An attempt at an assessment is presented, using quantitative and/or qualitative information, though unlikely to show the significance of
competing arguments.
Level 4
9-12
Accurate and thorough knowledge and understanding, supported throughout by relevant and effective use of the business behaviour/context.
A coherent and logical chain of reasoning, showing cause(s) and/or effect(s).
Assessment is balanced, wide ranging and well contextualised, using quantitative and/or qualitative information and shows an awareness of
competing arguments/factors, leading to a supported judgement.
Question
Assess the importance of the likely return on investment for a business when choosing a production location. (12)
Indicative content
Assess the importance of the likely return on investment for a business when
choosing a production location.
Indicative content guidance
Answers must be credited by using the level descriptors (below) in line with the general marking guidance. The indicative content below exemplifies some of the points that candidates may make but this does not imply that any of these must be included. Other relevant points must also be credited.
Knowledge, Application, Analysis, Evaluation - indicative content
- Return on investment refers to the financial benefits or profits made from an investment, such as setting up a production location in another
country
- This may be important if satisfying investors or shareholders is a priority and may determine the location of production if one country offers a higher return on investment than another
- Extract C looks at Malaysia and reports that the return on investment has increased in 2021
- It has increased from RM0.06 to RM0.13 (from 6% to 13%) which is
more than double
- This may be why FDI in Malaysia increased to RM48.1 billion in 2021 suggesting that for many businesses, particularly those from Singapore, Korea and Japan, where the return on investment is very
important
- Those in extractive industries will locate where there are natural
resources
- Others may want to minimise costs by searching for cheap labour or require a particular kind of skilled labour
- A stable political environment and ease of doing business may be more suited for those businesses looking to set up quickly and with minimum
interference
- Being able to manufacture from within a trade bloc such as the EU may be more important
- These factors may outweigh or override return on investment as a
deciding factor
Level
Mark
Descriptor
0
A completely inaccurate response.
Level 1
1-2
Isolated elements of knowledge and understanding - recall based.
Weak or no relevant application to business examples.
Generic assertions may be presented.
Level 2
3-4
Elements of knowledge and understanding, which are applied to the business example.
Chains of reasoning are presented, but may be assertions or
incomplete.
A generic or superficial assessment is presented.
Level 3
5-8
Accurate and thorough knowledge and understanding, supported throughout by relevant and effective use of the business behaviour/context.
Analytical perspectives are presented, with developed chains of reasoning, showing cause(s) and/or effect(s).
An attempt at an assessment is presented, using quantitative and/or qualitative information, though unlikely to show the significance of
competing arguments.
Level 4
9-12
Accurate and thorough knowledge and understanding, supported throughout by relevant and effective use of the business behaviour/context.
A coherent and logical chain of reasoning, showing cause(s) and/or effect(s).
Assessment is balanced, wide ranging and well contextualised, using quantitative and/or qualitative information and shows an awareness of
competing arguments/factors, leading to a supported judgement.
Question
Evaluate the importance of business ethics for a global business. (20)
Indicative content
Sources for use with Extract A Peru clothing industry welcomes tariff barrier to block large increase in clothing imports A report by the Peruvian competition authority said that imports of clothing into Peru rose by 254% between 2016 and 2020. As a result, imports have increased their share of the Peruvian clothing market to 13.4%. The report warns that there is a danger of damage to the domestic clothing industry and urges the government to increase tariffs on imports. The clothing industry employs over 420,000 people and is 8% of Peru’s manufacturing output. Extract B Branding lessons from Inca Kola, the Peruvian fizzy drink that beat Coca-Cola Anyone who has visited Peru is aware of the passion that Peruvians have for Inca Kola. With its yellow-gold colour, sweet flavour and secret formula, this fizzy drink is one of the few soft drink brands more popular than Coca-Cola in their home market. Currently, Inca Kola is the market leader in Peru with 26% of soft drink sales, closely followed by Coca-Cola, with 25.5%. Coca-Cola now owns Inca Kola but has found it difficult to sell the Peruvian cola into global markets. One of the challenges for Coca-Cola is the distinctive smell, taste and colour of Inca Kola. Although very popular in Peru, it has not become popular with foreign buyers who seem to prefer black colas to yellow colas. 5 5 10
3 Extract C How Peru became one of the biggest markets for Foreign Direct Investment (FDI) in South America Peru has a stable economy with strong growth. In the first quarter of 2021, Peru attracted $3.47bn of FDI, more than all of Peru’s FDI in 2020. The World Bank predicts its GDP will grow by 3.9% in 2022 and that it will be the second-fastest growing economy in South America. Peru has 21 Free Trade Agreements (FTAs) in force. In addition, it has 28 investment agreements with countries including Canada, Brazil, Chile, Japan and Switzerland. Peru has a low public debt to GDP ratio and is predicted to have the second-lowest inflation rate in South America. It has a good infrastructure and a supportive government with a stable legal framework. All this has made Peru a prime location for FDI, particularly in renewable energy, manufacturing, food, tourism, retail and technology. The average salary for an employee in Peru increases by 9% every 17 months. The global average is 3%. Extract D Remittances*: the hidden engine of globalisation According to the World Bank, the number of people in the world who live outside the country where they were born has risen from 153 million in 1990 to 270 million in 2020. It is estimated that these migrants from around the world will send a combined $689bn back home. For the first time these remittances will overtake foreign direct investment (FDI) as the biggest inflow of funds to developing countries. The large difference in income between developed and low-income countries means that job opportunities abroad will continue to be attractive. The World Bank expects another 550 million people to become migrant workers by 2030. The global trend is towards more migration, not less and the push from poor countries will be met by a pull from the rich ones. *A remittance is the term used for money that migrants send back to their home country
Assess the importance of the level and growth of disposable income for a business when considering entering a market such as Peru.
Indicative content guidance
Answers must be credited by using the level descriptors (below) in line with the general marking guidance. The indicative content below exemplifies some of the points that candidates may make but this does not imply that any of these must be included. Other relevant points must also be credited.
Knowledge, Application, Analysis, Evaluation - indicative content
- Disposable income is the amount of money that households have available for spending and saving after taxes have been paid
- The level of disposable income is likely to be very important if a global business is to be successful in establishing a market in a country such as Peru
- If incomes are low then competition for that income is likely to be strong and it may not be worthwhile entering the market
- The growth of incomes is important if demand is to be sustained and sales increased
- Peru is predicted to be the second fastest growing economy in South
America and salaries are growing faster than the global average, 9%
compared to 3%
- This will be an important pull factor for a global business wishing to
increase sales and/or enter a new market, particularly if its goods or services are income elastic
- A rapidly growing economy is likely to have a growing demand for
consumer and luxury goods and there may be gaps in the market for a new entrant
- However, the level and growth of disposable income is just one factor that will be taken into account when considering entering a new market
- Others factors such as infrastructure are important because a business
must be able to maintain supply/distribution networks to retail outlets
- Government policies which increase the ease of doing business may be
important, Peru has a supportive government and a stable legal structure
- Trading agreements may be a factor, for example Peru has 21 FTAs which will make cross-border trading easier
- Much will depend on the nature of the business wanting to enter the
market. Those businesses dependent on consumer sales with income elastic products will consider the level and growth of disposable income to be an important factor
- Businesses that supply capital goods to other businesses may be more
influenced by the high level of FDI into Peru
Level
Mark
Descriptor
0
A completely inaccurate response.
Level 1
1-2
Isolated elements of knowledge and understanding - recall based.
Weak or no relevant application to business examples.
Generic assertions may be presented.
Level 2
3-4
Elements of knowledge and understanding, which are applied to the business example.
Chains of reasoning are presented, but may be assertions or
incomplete.
A generic or superficial assessment is presented.
Level 3
5-8
Accurate and thorough knowledge and understanding, supported throughout by relevant and effective use of the business behaviour/context.
Analytical perspectives are presented, with developed chains of reasoning, showing cause(s) and/or effect(s).
An attempt at an assessment is presented, using quantitative and/or qualitative information, though unlikely to show the significance of
competing arguments.
Level 4
9-12
Accurate and thorough knowledge and understanding, supported throughout by relevant and effective use of the business behaviour/context.
A coherent and logical chain of reasoning, showing cause(s) and/or effect(s).
Assessment is balanced, wide ranging and well contextualised, using quantitative and/or qualitative information and shows an awareness of
competing arguments/factors, leading to a supported judgement.
Question
Assess the role of migration in increased globalisation (12)
Indicative content