Practise how businesses combine resources and decisions to create value, classify sectors and respond to start-up opportunities and risks.
Buzza
Jo and Demi Straus established Buzza, a partnership, in 1999. Buzza manufactures women's fashion accessories, such as handbags and scarves. Jo, a gifted designer, directs the design team. Demi, a business graduate, organized the business by function. She manages most of those functions.
In 2012, they converted Buzza to a private limited company to help obtain finance for the business's expansion. Jo and Demi retained 60 % ownership between them.
Because of the brand's reputation, Buzza can recruit creative graduates from design universities. Graduates receive 12-month contracts, which are renewed only if Buzza accepts their designs. Buzza tells graduates that, generally, only half of all contracts are renewed. The average age in the design team is 26 . Labour turnover in the design team is much higher than in similar exclusive brands.
Wealthy consumers interested in the latest fashions find Buzza a highly desirable and exclusive brand. Only approved retail outlets sell Buzza products. New collections are produced four times a year. At the end of each season, retailers return unsold products to Buzza. Last year, these unsold products were valued at million. At present, Buzza sends returned products to an incinerator plant to be destroyed. A recent television documentary revealed that Buzza incinerates perfectly good products, which led to damaging social media comments.
In response to the negative publicity, Jo and Demi are considering two options:
Option 1: Sell surplus products at greatly reduced prices on its website.
Option 2: Break down returned products to recover raw materials for re-use in future products. This process of breaking down returned products will be time consuming and costly.
State three of Buzza's main business functions.
Trestle Z PLC (TZ ), a specialist coffee roaster, operates in the secondary sector. Its instant coffees are sold worldwide in a very competitive market. Consumers in this market have strong brand loyalty.
Option 1: Take over a specialist coffee business TZ is considering taking over Green Glass (GG) for $600 million. GG owns 1000 cafés in the USA that sell speciality products at high prices. It also has an e-commerce subscription service that sells its coffee beans to consumers. In 2020, GG’s net profits were $120 million. GG has a well-organized distribution channel and strong brand awareness in the USA. TZ would operate the cafés using the GG branding.
Trestle Z PLC (TZ ), a specialist coffee roaster, operates in the secondary sector. Its instant coffees are sold worldwide in a very competitive market. Consumers in this market have strong brand loyalty. Although demand for instant coffee has not grown in many richer countries, it is growing in emerging markets and Eastern Europe. TZ has no control over the price of its raw material (coffee beans), as prices are determined by world markets.
Trestle Z PLC (TZ)
Trestle Z PLC (TZ), a specialist coffee roaster, operates in the secondary sector. Its instant coffees are sold worldwide in a very competitive market. Consumers in this market have strong brand loyalty.
Although demand for instant coffee has not grown in many richer countries, it is growing in emerging markets and Eastern Europe. TZ has no control over the price of its raw material (coffee beans),
as prices are determined by world markets.
The directors of TZ want to increase the company's gross profit margin and net profit margin and grow the business. Table 5 gives selected financial information for the company for 2019 and 2020.
Table 5: Selected financial information for TZ
TZ's directors are considering two options.
Option 1: Take over a specialist coffee business
TZ is considering taking over Green Glass (GG) for million. GG owns 1000 cafés in the USA that sell speciality products at high prices. It also has an e-commerce subscription service that sells its coffee beans to consumers. In 2020, GG's net profits were million. GG has a well-organized distribution channel and strong brand awareness in the USA. TZ would operate the cafés using the GG branding.
Option 2: Launch its own chain of cafés
These cafés would compete against established chains of cafés serving the mass market. Initially, the launch would be in three EU countries but would then, if successful, be launched across the world. TZ would produce a range of freshly ground coffees for sale in the cafés.
Define the term secondary sector.
Make-Up (MU)
Lana Lane is an image coach and plans to open Make-Up (MU), a shop where she can sell her own brand of beauty products. Because Lana is a female entrepreneur, her local government will pay 50 % of the rent for the space in which MU will operate.
Lana has forecasted the following figures for MU for the first six months of operation, beginning on 1 July 2023 (see Table 1). The opening balance will be .
Table 1: Figures for the first six months of operation, beginning on 1 July 2023
Lana has learned that a new competitor with lower prices will enter the market before the end of 2023.
State two characteristics of an entrepreneur.