CAIE IGCSE Business Studies 6 external influences
Use this External Influences hub to connect government policy, international trade, exchange rates, ethics and environmental effects.
- Syllabus
- 2027–2029
- Course
- Business 0264
Covered syllabus points
6. External influences on business activity question 1
[Maximum number: 6]
Avtar owns a car repair business which operates in the private sector. It is a small business with 2 full-time employees. Avtar wants to find out the best way for a business to increase added value. Avtar's business needs finance for many reasons. Avtar wants to know how an economic recession might affect his business.
Explain two ways an economic recession might affect Avtar's business.
Way 1:
Explanation:
Way 2:
Explanation:
Award 1 mark for identification of each relevant way (max 2). Award 1 mark for each relevant reference to this business (max 2).
Award 1 mark for each relevant explanation (max 2).
Points might include:
- Less/lower demand/sales [k] for car repairs [app] reducing revenue / need to make redundancies [an]
- Less/lower competition (as other businesses fail) [k] which could increase potential customer base [an]
- Widen pool of potential employees [k] if he wants more than 2 employees [app] which may lower recruitment costs [an]
- Reduce number of employees [k] so lower break-even / cash outflows / lower costs [an] so does not need finance [app]
- May lower prices [k] which reduces added value [app] increase demand [an]
- Material costs may be lower [k] which may increase profit margin/lower variable costs [an]
- May delay any expansion plans [k] as not able to afford it [an] so business must remain small [app]
- Hard to survive / may close down / objective may switch to survival [k] so may lose his investment/difficult to attract investment [an]
- May have cash flow problems [k] so need overdraft/loan/cannot repay loans/day-to-day costs [an]
- Customers may delay payment / more bad debts [k]
- More difficult to raise finance/banks may not lend [k]
Other appropriate responses should also be credited.
To use words from the stem as application, the reference must be appropriate (i.e. make sense) in relation to the point being made.
The following words are likely to be appropriate for this question:
- (Car) repair / garage or examples
- 2 workers
- Full-time (employees)
- Private sector business
- Small business
- Added value
- Short-term/long-term finance/needs finance (for many reasons)
Other appropriate examples can be credited.
Some points such as lower costs can be [k] or [an] but only award once.
Points about repay loans/interest/need to borrow from bank is [an] only.
6. External influences on business activity question 2
[Maximum number: 4]
DLT manufactures cups and plates in country X. Its factory uses flow production and has 75 employees. The Human Resources Director is aware that there are many legal controls over employment. DLT exports 30% of its products to country Y where it benefits from lower rates of taxation and no import quotas. DLT's Managing Director is considering relocating its factory to another part of country X to meet the increased demand for its exports.
Question (a)
(a)
Define 'import quota'.
[ 2 ]
Award 2 marks for a full definition. Award 1 mark for a partial definition.
Physical limit on the number/amount of goods that can be imported/allowed into a country [2]
OR
Restriction on the quantity of a product than can be imported [2]
Partial definition e.g. limit on number/quantity of goods [1] OR limit on imports [1]
To award both marks the answer must include the idea of limit on number/quantity of goods and the idea of imported/into the country.
Do not award:
- answers which confuse the term with a tariff.
Question (b)
(b)
Identify two benefits to a business of lower rates of taxation.
Benefit 1:
Benefit 2:
[ 2 ]
Award 1 mark per benefit (max 2).
Points might include:
- May encourage investment/growth
- Increase sales/revenue/income
- Lower costs/less cash outflow/lower expenses/cheaper raw materials/cheaper imports
- More (retained) profit
- Higher profit margin
Other appropriate responses should be credited.
Only award the first two responses given.
6. External influences on business activity question 3
[Maximum number: 10]
GAE is a multinational company. It manufactures steel. GAE has 2400 employees and has factories in 4 countries. The business regularly introduces new technology. Holding inventory is important. GAE's directors are planning to build a new factory and want to know how legal controls over location might affect this decision. The Managing Director said, 'The new factory will create many external benefits.'
Question (a)
(a)
Define 'external benefits'.
[ 2 ]
Award 2 marks for a full definition. Award 1 mark for a partial definition.
- Gains to the rest of society other than the business as a result of business activity [2]
Partial definition e.g.
- Gains to the rest of society / third party [1]
References to business activity is [+1] only.
Question (b)
(b)
Identify two ways legal controls over location might affect a business.
Way 1:
Way 2:
[ 2 ]
Award 1 mark per way (max 2).
Points might include:
- Affect where they can/cannot locate
- Affect how they produce or examples e.g. change production methods, change / restrict (raw) materials used
- Affect when / hours can operate
- Increased costs
Other appropriate responses should be credited.
Only award the first two responses given.
Question (c)
(c)
Explain two benefits to a business of being a multinational company. Which benefit is likely to be the most important? Justify your answer.
[ 6 ]
Award up to 2 marks for identification of relevant points. Award up to 2 marks for relevant development of points. Award up to 2 marks for a justified decision as to which benefit of being a multinational company is likely to be the most important.
Points might include:
- Spreading risk [k] so a fall in sales / revenue in one country can be offset by an increase in sales / revenue in another country [an]
- Access new / wider markets / sales / customers [k] increasing revenue / (global) market share [an]
- Improve brand image / reputation [k] to help increase / maintain customers AND/OR could allow them to set higher prices / provide competitive advantage [an]
- Economies of scale [k] lowering average/unit costs [an]
- Cheaper / access (better quality) raw materials [k] reducing transport costs [an] OR access better quality / wider range of raw materials [k] allowing the business to produce new products [an]
- Access to cheap labour [k] which can lower costs / increase profit margin [an] OR Access to skilled labour [k] which could increase efficiency [an]
- Avoid import quotas [k] so no/fewer limits on the number of products the business can import into a country [an]
This is a general question so there are no marks for application.
Some points can be [k] or [an] but only award once.
The following are [an] only:
- Increase market share
- Provide competitive advantage
- Avoid import tariffs [k] so does not make products more expensive [an]
- Reduced tax liability / benefit from favourable / lower tax rates [k]
- Access government support/grants [k]
Other appropriate responses should also be credited.
Justification might include:
One benefit is spreading risk [k] so a fall in sales in one country can be offset by sales in another country [an]. It also allows for easier access to raw materials [k] reducing transport costs [an]. Access to raw materials is likely to be the most important benefit because this could reduce production costs leading to lower prices helping the business remain competitive [eval] and ensuring the extra sales are achievable [eval].
6. External influences on business activity question 4
[Maximum number: 6]
CFG is a social enterprise. It buys cocoa beans from local farmers and then uses the beans to make chocolate. Being ethical is important to the business. CFG has developed a new chocolate bar. The Marketing Manager plans to use skimming as its pricing method, and retailers as its distribution channel for the new product. He knows there are many legal controls over marketing that might affect a business.
Do you think being ethical will always lead to lower profit for a business? Justify your answer.
Award up to 2 marks for identification of relevant points. Award up to 2 marks for relevant development of points. Award up to 2 marks for justified decision as to whether being ethical will always lead to lower profit for a business.
Points might include:
- Limited/fewer sources of materials [k] leading to less output [an]
- Higher cost of materials [k] leading to higher variable costs/cost of goods [an] which lowers gross profit margin [an]
- Workers may have to be paid more/fair pay [k] increasing labour costs [an]
- May take time to source ethical supplies [k] which could delay production [an]
- Good image/reputation [k] so can charge high(er) prices/ lead to customer loyalty [an]
- High(er) demand / increase sales / enter new market / more customers [k] which could increase revenue [an]
- Help recruit/motivate/retain workers [k] leading to lower absenteeism/increased productivity [an]
- Investors more likely to invest [k]
- Can help create better supplier relations (by paying a fair price) [k]
- Less opposition from pressure groups [k]
This is a general question so there are no marks for application.
Increase cost can be awarded as [k] once where candidates do not refer to specific examples of costs.
Do not credit answers which relate to the costs of being unethical as this is NAQ.
Justification might include:
Being ethical could mean having to pay more to suppliers [k] increasing variable costs [an]. However, this could improve the business's reputation [k] allowing them to increase prices [an]. Being ethical will not always mean lower profit because a better reputation is likely to attract more customers [eval], and the extra revenue gained could cover the costs increasing profit overall [eval].
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