Edexcel IAL Business 2.3.5 External Influences

Practise Edexcel Business questions on economic, legal, environmental and social influences, applying external change to a firm’s decisions and performance.

[Maximum number: 12]

Extract A Lotus Garments Co. Egyptian business Lotus Garments Co. is one of the leading clothing manufacturers in the world. It produces clothing for the biggest names in denim such as Levi Strauss \& Co. and the Wrangler and Lee brands owned by the VF Corporation. Chairman and CEO Hossam Gabr, previously produced jackets and trousers but entered the denim business in 2002. Today 11,800 skilled employees at the Port Said factory can produce up to 26,000,000 items of clothing a year. Lotus Garments Co. has recently adopted both just in time (JIT) and total quality management (TQM) in order to keep up with international competition and give the flexibility to meet its customers' needs. The business meets all international standards for quality, production and health and safety. Although most pairs of jeans are exported to the USA, Lotus Garments Co. also supply clothing retailers in Egypt. It is planning to do two things. Firstly, to increase its sales in Egypt and secondly to reduce its annual total costs of $420m. By working closely with local suppliers Lotus Garments Co. believes it can continue to meet the needs of its customers for many years to come.

Extract B

Egyptian interest rates from 2010 to 2018

(a)

Extract A Lotus Garments Co. Egyptian business Lotus Garments Co. is one of the leading clothing manufacturers in the world. It produces clothing for the biggest names in denim such as Levi Strauss \& Co. and the Wrangler and Lee brands owned by the VF Corporation. Chairman and CEO Hossam Gabr, previously produced jackets and trousers but entered the denim business in 2002. Today 11,800 skilled employees at the Port Said factory can produce up to 26,000,000 items of clothing a year. Lotus Garments Co. has recently adopted both just in time (JIT) and total quality management (TQM) in order to keep up with international competition and give the flexibility to meet its customers' needs. The business meets all international standards for quality, production and health and safety. Although most pairs of jeans are exported to the USA, Lotus Garments Co. also supply clothing retailers in Egypt. It is planning to do two things. Firstly, to increase its sales in Egypt and secondly to reduce its annual total costs of $420m. By working closely with local suppliers Lotus Garments Co. believes it can continue to meet the needs of its customers for many years to come.

Define the term 'health and safety'. (Extract A, line 11)

[ 2 ]

(b)

Assess the likely impact on Lotus Garments Co. of the recent changes in Egyptian
interest rates.

[ 10 ]

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
- Interest rates are the amount of interest due per period of time as a
proportion of the amount deposited, lent or borrowed
- The interest rate in Egypt rose from about 8% in 2010 to nearly 19% in
2018
- A rise in the interest rate would make the cost of borrowing more
expensive and reduces the disposable income of Egyptian customers who
have a loan, encouraging saving not spending
- Although clothing is necessary, it is less likely to sell if Egyptian consumers
have a reduced disposable income
- In order to increase sales domestically Lotus Garments Co. may need to
borrow money to finance an advertising campaign to promote its goods or
to conduct market research
- Given the increasing interest rate, it is probably not a good time for Lotus
Garments Co. to consider expanding sales domestically
- However, Lotus Garments Co. exports the majority of its denim to the USA
and so the customers would not be affected by the Egyptian interest rate
- There is no information about how much or whether Lotus Garments Co.
actually borrows money at the moment
- As it can produce 26,000,000 items of clothing a year, Lotus Garments Co. is
likely to be a large business which may not be affected greatly by interest
rates
- Lotus Garments Co. may have profits invested which could generate more
income when the interest rate is high
- It may depend on other economic influences such as the exchange rate. A
high interest rate may encourage foreign investment meaning the value of
the Egyptian currency (Egyptian pound) may rise, possibly leading to a fall
in exports due to the price of jeans becoming more expensive
- It depends whether the trend of rising/high interest rates continues and
on other economic influences such as the rate of inflation or level of
wages in Egypt

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

5-7

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

8-10

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.

[Maximum number: 10]

Sources for use with Extract A Brooke Downs Vennard Partnership (BDVP) BDVP is a firm of solicitors located in British Columbia, Canada. Established in 1980, it has grown into one of the most respected legal businesses in the area. This is important because there are over 10,000 qualified solicitors competing for clients in British Columbia. As well as providing clients with assistance when buying property or making a will, the partners specialise in business, contract and commercial law. Clients are allowed either 30 or 60 days to pay on completion of legal work provided by the partnership. This has helped BDVP increase its client base. However, it can make cash flow more difficult to manage. Communication is very important to BDVP and the partners try to replace computers whenever they become out‑of‑date and slow. They also make sure employees are trained in the use of technology. As well as employing five solicitors, BDVP has a team of other employees in legal occupations such as secretaries, administrative assistants and junior associates. Employees currently work from 8.30 am – 5 pm with a 30 minute lunch‑break. All employees are encouraged to take responsibility for their work and are often consulted about changes affecting the office. The latest example of a consultation was a discussion about changes to employee protection legislation and how it would affect the partnership. Extract B British Columbia Employment Standards Act British Columbia employers can expect significant amendments to the Employment Standards Act to be introduced in 2019. Some of the more significant recommendations for amendment include:  allow alternative working hours within the 40‑hour week to the standard eight‑hours per day  allow employees the right to refuse overtime in circumstances where overtime would conflict with significant family‑related commitments, scheduled educational commitments, or other employment obligations  the existing five days per year unpaid family responsibility leave would be replaced with seven days per year of unpaid leave, which could be taken for reasons of the employee’s own illness or for the care, health, or education of a child in the employee’s care.

(a)

Explain one way the number of competitors in British Columbia might affect Brooke Downs Vennard Partnership (BDVP).

[ 4 ]

(b)

Analyse two ways that employee protection legislation may affect a business such as BDVP.

[ 6 ]

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Edexcel IAL Business 2.3.5 External Influences

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Covered syllabus points

Covered syllabus points

2.3.5 - External influences question 1

Question (a)

Question (b)

2.3.5 - External influences question 2

Question (a)

Question (b)