Practise explaining the role and importance of research and development for IB Business Management HL decisions with real exam-style questions and mark schemes.
Pedro is a farmer who operates as a sole trader in a developing country. Like other farmers in his community, he grows oranges, which are sold to buyers in developed communities and large cities. Working in the primary sector often results in very low income and poverty for some of the farmers. Most children do not go to school, as they are needed in the fields for manual work. Cooperation between the farmers in this community is very limited due to linguistic and cultural differences. Recently, farmers’ incomes have fallen further. Pedro has conducted social, technological, economic, environmental, political, legal and ethical (STEEPLE) analysis and identified two main external threats that are impacting on farmers’ incomes:
• competition from orange producers from developed communities and large cities with improved technology and higher productivity rates
• a severe and sustained drought affecting the level of orange production in all developing countries. Pedro would like to improve productivity as an orange producer. Investing in new technology is risky and would require extensive research and development. The internet is unreliable and Pedro is unable to raise funds for this investment himself to change current production methods.
Pedro
Pedro is a farmer who operates as a sole trader in a developing country. Like other farmers in his community, he grows oranges, which are sold to buyers in developed communities and large cities. Working in the primary sector often results in very low income and poverty for some of the farmers. Most children do not go to school, as they are needed in the fields for manual work. Cooperation between the farmers in this community is very limited due to linguistic and cultural differences.
Recently, farmers' incomes have fallen further. Pedro has conducted social, technological, economic, environmental, political, legal and ethical (STEEPLE) analysis and identified two main external threats that are impacting on farmers' incomes:
- competition from orange producers from developed communities and large cities with improved technology and higher productivity rates
- a severe and sustained drought affecting the level of orange production in all developing countries.
Pedro would like to improve productivity as an orange producer. Investing in new technology is risky and would require extensive research and development. The internet is unreliable and Pedro is unable to raise funds for this investment himself to change current production methods.
Pedro has arranged an emergency meeting of local farmers. He proposes that all farmers in his community create an agricultural cooperative and collectively raise funds to invest in new capital-intensive farming methods. The investment in technology could allow them to diversify into the manufacturing of bottled orange juice drinks.
Explain one cost and one benefit to Pedro of conducting extensive research and development.
The question is essentially about researching and developing new technology rather than market research of customers' opinions etc.
Costs
Harvesting in the developing community is labour intensive, children will need supervising and the internet is unreliable. Pedro may not have the time and the resources to carry out research and development into new technology. The time taken to undertake research and development will lead to significant expenses for Pedro. Moreover, the opportunity costs in terms of not working in the field could be considerable for Pedro.
As the technology is untested, the poorer community can ill afford for this technology not to work as they have limited funds. There are significant risks/costs of failure for the developing communities at a time when incomes are falling.
Accept any other relevant/ applicable cost
Benefits
The potential benefits for the community of research and development are the productivity benefits allowing developing communities a more level playing field with respect to competition with the developed farmers. Unit costs could fall, and therefore prices to customers, increasing the demand for oranges. Perhaps it is a risk worth taking in terms of time and resources.
By conducting research and development, Pedro could attract an angel investor/innovator who for marketing or ethical reasons may be willing to allow Pedro to try new, untested technology at a deep discount or even for free as a public relations exercise. This could benefit Pedro and other community members especially if the cooperative is formed.
Accept any other relevant cost/benefit.
Mark as 2+2.
- For an identification or a description of one benefit/ cost with or without application [1].
- For explanation of one benefit/ cost with no application [1].
- For explanation of one benefit/ cost and application [2].
Application must refer to researching technology.