CAMBRIDGE INTERNATIONAL AS & A LEVEL BUSINESS: TEACHER’S RESOURCE

Exam-style questions and sample answers have been written by the authors. In examinations, the way marks are awarded may
be different.

Coursebook answers
Most of the answers are in ‘outline’ form indicating the appropriate points and skills that learners need
to include in their answers. They provide the necessary guidance to allow learners to develop and extend
the points for a fuller answer that contains the relevant skills. In many instances, there may be other valid
approaches to answering the question.

Chapter 6
Business in context
Learners’ discussion might include
Private sector more efficient
• Competition and profit motive give the incentive to reduce costs.
• The private sector is more innovative as there is an incentive to gain a competitive edge.
• It can raise capital from financial markets for investment.
• Political interference in the public sector reduces efficiency and control may be bureaucratic.
Public sector more efficient
• Private-sector monopolies may exploit consumers and increase prices.
• State-controlled business may benefit from economies of scale.
• Private sector focuses on short-term returns for shareholders rather than long-term goals.
Should government own and control any business?
• It could focus on social and environmental objectives rather than profit.
• It might prevent job losses in failing industries.
• It might own and control public utilities (e.g. water, energy and communications) because they are
vital to private-sector success.

Activities
Activity 6.1
1 Benefits of privatisation
• The private-sector owner, motivated by profit and subject to market forces, will seek to reduce
operating costs through rationalisation, i.e. cutting jobs and modernising working practices.
This will benefit consumers, as prices will fall.
• It allows PSM to access private-sector finance for investment purposes. This could increase efficiency.
• Consumers may also benefit from improved customer service as efficiency increases.
• Government will benefit from a one-off cash inflow from the sale of PSM. This can be spent on
government projects or help balance government budgets.
• Profit made by PSM will be taxed. This will generate future revenue for the government.
• Lower prices through increased efficiency will benefit the economy as a whole.

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Disadvantages of privatisation
• The most likely problem in the short term is that there would be a restructuring of the company.
Six thousand jobs might be lost.
• This will increase unemployment and increase government spending to create jobs and/or support
the unemployed.
• It will be difficult for those losing their jobs to find alternative work and this will cause hardship
for many families.
• There will be short-term disruption to supplies, caused by any industrial action by unions.
• As a nationalised industry, PSM may have had an operating surplus (i.e. profit). The government
will lose that surplus.
Evaluation should balance or weight key arguments and provide a supported judgement. Although
remaining in the state sector protects jobs, it is more efficient for the government to retrain workers
than continue to subsidise a loss-making business. Once in the private sector, PSM can acquire the
capital needed to invest in improving efficiency so that it can compete internationally.

Activity 6.2
1 Learners’ answers might include:
• Absence of a written contract of employment.
• Payment below the minimum wage.
• Failure to disclose payments to the tax authorities.
• Discrimination on the grounds of gender.
• Summary dismissal without justification.
2 Learners’ answers might include:
• Businesses enjoy the protection provided by the laws of the country and should therefore observe
laws which set out worker rights. Employment laws also provide protection for the employer.
• Observing employment laws helps businesses recruit and retain staff. Failure to pay minimum wage
leads to higher rates of labour turnover. This could put businesses at a competitive disadvantage.
• If laws are broken, this may result in bad publicity and lost sales.
• If laws are broken, legal action may be taken. This could lead to fines, suspension of production
or even complete closure. The penalties for breaking the law may be so great that it is not worth
taking the risk for the sake of reducing short-term costs.
• Employment laws add to the costs of a business, e.g. safety equipment.
• Employment laws may make recruitment processes more time-consuming.
• A business may be able to gain a competitive edge by cutting corners on safety or paying workers
below minimum wage. Consumers are primarily interested in value for money so if costs can be cut
and prices reduced then the business will benefit from higher sales.
• Evaluation could include an assessment that the impact will be greater on businesses with large
numbers of employees or on those that do not currently treat employees in responsible ways.

Activity 6.3
1 Learners’ answers might include:
• Businesses have more resources, knowledge and power than individual consumers. This gives a
significant advantage to the business in its relationship with the consumer.
• The complexity of modern products means that it is difficult for consumers to fully understand
individual products and the claims made about them.
• To protect the consumer from unsafe products.
• To protect the consumer from unfair selling techniques.

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• To prevent businesses making false claims about products, e.g. ensuring that food sold by weight
really is the weight that is claimed.
• To protect consumers from unfair competitive practice. Such practices may lead to higher prices
and less choice.
2 Benefits to business
• Through regulating business activity, consumer protection laws prevent dishonest and
unscrupulous businesses from gaining a competitive advantage. Consumer laws ensure that there is
fair competition and therefore protect businesses that behave responsibly. Learners should provide
examples of relevant consumer protection laws.
• Consumer protection laws may prevent claims through civil courts regarding unsafe products, as
businesses have to improve their standards.
Harmful impact on business
• There are costs of conformance with the law, e.g. they impose a need to meet minimum
safety standards.
• When consumer protection laws are introduced or changed, they may require businesses
to substantially change their practices. Increased costs could result in bankruptcy for
some businesses.
• The more rights that consumers have, the more likely it is that firms will have to defend their
actions in court. For example, strict liability for defective and potentially dangerous products
could result in companies being sued.
Evaluation may recognise that, although there are compliance costs to businesses, consumer protection
laws ensure that competition is fair, which is beneficial to most businesses.

Activity 6.4
1 Learners’ answers might include:
• FastJet may benefit from misleading customers because, once they have been attracted to the
website by advertised low prices, customers may continue with the booking even when the price
starts to rise due to the addition of taxes and charges.
• FastJet may gain a competitive advantage over-other low cost airlines that take a more honest
approach to advertising.
• The publicity generated highlights the fact that FastJet is offering flights at these low prices even
if restrictions apply. This free publicity may encourage consumers to check FastJet’s website when
searching for cheap flights.
2 In favour of control
• False and misleading claims cause consumer confusion and cloud their judgement when making
purchases. This is an unfair practice both to the consumer and to other competing businesses.
With no controls, businesses would be free to make any claim they wished, however untrue.
Against control
• The claims made and promotional techniques used do not force consumers to actually purchase.
Consumers still enter into contracts voluntarily. Consumers can vote with their spending power if
they are unhappy about misleading claims.
3 Response of the CEO could include the following:
• Withdrawing the adverts that have broken the country’s Advertising Code. This will avoid legal
action, fines and further bad publicity. Legal action could be extremely damaging to FastJet in
terms of its reputation, making it more difficult to attract customers.
• Ignoring the threat of legal action, as compliance with the law could be costly. Having to change
advertised prices to include taxes and charges could lead to a loss of sales as well as disruption
to the website whilst the changes are made. Therefore, FastJet risks losing passengers to other
low-cost airlines. The problem with this strategy is that, if the Office for Consumer Affairs does
take legal action, the costs could be even greater. FastJet would need to take legal advice as to the
likelihood of any prosecution being successful.

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• The airline may launch a counteroffensive to boost public support. The CEO may undertake
public relations exercises and make press releases. FastJet may claim unfair treatment by the
Advertising Standards Authority (ASA); much would depend on the number of complaints the
ASA has received. If there have been few complaints about the advertising, it may be assumed
that the majority of consumers do not object to the advertising imagery used. There might be
substantial media interest in the story and the publicity would not necessarily harm FastJet.
• Evaluation could include an assessment of which response is likely to be most effective in restoring
the reputation of the business.

Activity 6.5
Learners’ own answers.

Activity 6.6
1 Possible reasons include:
• Work–life balance. Employees may be trying to balance their work with leisure time. By reducing
working hours, this releases time for leisure activities and, although income will fall, quality of life
may be improved. The employee values leisure time more highly than work.
• Childcare. Working part-time may fit in with childcare needs, enabling parents to collect children
from school. Childcare may also be expensive so it may be preferable to work part-time to reduce
the cost of childcare.
• Part-time employment may complement other priorities that employees have, e.g. students at
university will not be able to take full-time work but may need to earn money to pay for their
studies.
• Part-time employment gives some workers the opportunity to take a second job to supplement
their income.
• Older workers who have retired may wish to supplement their pensions through part-time work.
2 Benefits and threats of more part-time staff, temporary workers and zero-hours contracts:
• Employees in many countries have fewer rights than their colleagues who have permanent
contracts. Rights to sick pay, maternity leave, holidays etc. may differ significantly.
• Some jobs may not be attractive to full-time employees. Some businesses employ a high proportion
of part-time workers. These businesses may find it difficult to recruit and retain sufficient full-time
staff due to the nature of the work or low rates of pay.
• Some businesses actively recruit older employees as they are often considered more reliable.
Part-time work may be particularly attractive to older workers who have retired or are approaching
retirement age.
• These contracts offer greater flexibility to alter staffing costs to match the economic cycle. In
a recession, businesses will be able to reduce costs by not renewing temporary contracts or by
changing hours of work for zero-hours contract employees. If a business only employs permanent
staff, reducing the labour force may be expensive due to payment of redundancy.
• Temporary workers are essential in seasonal industries, e.g. harvesting crops. Using temporary
workers reduces the fixed costs of full-time and salaried posts.
• Employees on these types of contract may be less committed to the business and therefore
less productive.
• Higher labour turnover will increase the costs of recruitment.
• Employees on these types of contract may gain less experience than their full-time equivalents.
This could reduce the quality of customer service and production of goods.
• Evaluation could include an assessment of the type of employees that a business employs and the
importance of having full-time employees.

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Activity 6.7
1 Gender: increasing rates of female participation may require web design businesses to offer more
flexible working contracts. As women often fulfil the primary care role for children, child-friendly
hours and part-time employment contracts may be more suitable.
Education: if higher levels of education are attained, more skilled employees are available. Recruitment
of individuals with computing skills will be easier.
2 The labour force is predicted to increase by 3.4m workers between 2021 and 2026. So, although the
proportion of young workers is set to decrease by two percentage points, there will be an increase in
the number of people aged 15–24. This would suggest that the business does not need to change its
employment policy.
However, the forecast is that, by 2026, 35% of the labour force will be educated to degree level. This
could mean there will be fewer young males willing to accept low-paid employment. This would suggest
that the business might need to increase wages to attract workers. If there is no Equal Pay law in the
country, an unethical business could recruit more female workers and try to pay lower wages. However,
more flexible employment contracts might be required to attract female workers if they are primary
carers for children.

Activity 6.8
1 Bar codes give more accurate inventory control, ensuring that customers can find the products they
want. Bar codes can be scanned, so increase speed at the checkout.
Online shopping is constantly available so customers can shop when it suits them. This reduces
pressure on the shopper to make a purchase, as there are no shop assistants. The customer can take
more time over purchases. Customers have the ability to compare prices more easily, which increases
competitive forces to push prices down. Online shopping reduces the time spent travelling to and
from shops.
2 Benefits may include:
• Reduced queuing at checkouts because the technology tracks exactly what the customer has as
they pass a receiver. Supermarkets are able to make cost savings in staffing as there is a reduced
need for checkout operators. Reducing costs contributes to higher profits and prices can be
lowered to increase the level of custom.
• Better inventory control, as it is known exactly what has been sold. Sell-by dates are automatically
transmitted, so out-of-date products are identified and customer dissatisfaction is avoided.
• Reducing theft, as products that have not been paid for are automatically identified when leaving
the store.
• Greater awareness of which supplier products come from. This may help with quality control.
3 RFID is a potentially difficult technology to introduce as it will have a significant impact on human
resources. It is important to discuss its introduction with affected workers.
• The supermarket may benefit from consulting unions, where they exist, and/or all employees. This
is necessary to ensure that employees understand the need for the technology and impact of it on
working practices. Consultation may reduce opposition to the technology and help avoid conflict
and industrial unrest.
• If the technology will lead to redundancy, further consultation will be needed. This is a
statutory requirement in some countries. Managers will have to determine the criteria on which
redundancies will be made, ensuring that they do not breach employment rights. Voluntary
redundancy may be favoured to reduce conflict.
• Finance will have to ensure that sufficient capital is available for purchasing the system.
• Different systems will have to be assessed to compare cost and effectiveness.
• Operations will need to carefully plan the timing of introducing the technology. Managers may
utilise techniques such as critical path analysis. There is likely to be disruption of the supermarket
as the technology is installed.

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• HRM will need to provide training for employees to ensure they are familiar with and able to
operate the technology.
• Marketing may wish to publicise the changeover in advance to prepare customers. Once RFID is
introduced, staffing levels may need to be temporarily increased to inform and guide customers as
to the use of RFID technology.
• The new technology will have to be monitored to assess whether it is providing the expected
benefits and, if not, what can be done to improve performance.
Evaluation may focus on the need for effective planning to ensure that disruption is kept to a minimum.
The costs of disruption will relate to dissatisfied customers and lost sales. Alternatively, the importance of
HRM may be emphasised, with the costs to the business of not overcoming possible employee opposition.

Activity 6.9
1 Market size: a global market gives the potential for more sales.
Economies of scale: an increase in the scale of production, made possible by operating globally, will
reduce unit costs. Therefore, Coca-Cola can benefit from higher profit margins.
2 Employment. The bottling plants need labour and therefore jobs are created. This will raise incomes in
the country.
Improved infrastructure. Building bottling plants increases the capital in the country and there are
likely to be associated improvements to local roads.
3 Benefits
• Suppliers’ sales will increase, e.g. in logistics, electricity and water. Coca-Cola claims to benefit
local businesses.
• A rise in incomes will increase demand for the goods of other businesses.
• The use of new technology will spread. Coca-Cola’s operations will use the latest technologies and
other firms may learn from this.
Disadvantages
• There may be reduced demand for products from competitors, which may struggle to compete
with such a well-known brand. Some businesses will close down.
• There may be competition for resources (e.g. water and labour), which may damage other
businesses. Water shortages may occur. Competition may drive wages upwards.
Evaluation might focus on the possible disruption to water supplies in local communities and impact
on business of water shortages. Assess which businesses are most likely to benefit/be adversely affected
by Coca-Cola’s operations.

Activity 6.10
1 ETG has operations in 12 countries and is not simply selling its products in Britain, where its headquarters
are located. ETG clearly has manufacturing capacity in a number of countries, such as Mexico.
2 Learners’ answers might include:
• ETG’s factories have a poor record on pollution. If ETG cuts costs through having low
environmental standards, its new factory will impose significant external costs on Malaysian
society, such as the impact on children’s health of increased levels of pollution.
• The Malaysian Tyre Group (MTG) may be forced out of business as it will be unable to compete
with ETG. MTG may be disadvantaged because of its smaller-scale production and inferior
technology. If MTG is unable to compete on price, it will lose business.
3 Learners’ answers might include:
• To access new and developing markets such as Malaysia and Mexico. By locating in those
countries, ETG is near to potential consumers.
• To cut costs of production. In many European countries, there are strict labour laws and minimum
wage legislation. So it is relatively expensive to employ workers and this pushes up the costs of
production, leading to higher prices for consumers.

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• To avoid environmental standards applied in the European Union. Strict controls on emissions
and disposal of waste will add to costs. Locating in developing countries may avoid such
environmental controls, enabling ETG to be more price competitive.
4 A discussion of the advantages and disadvantages that multinationals bring to a country is the simplest
approach. However, the question refers to the extent to which multinationals should be controlled
rather than whether they are good or bad. Most answers are likely to conclude in evaluation that some
control of multinationals is necessary, whilst recognising that too much control would lead to a loss of
investment with detrimental effects to the economy.
Control is required to address the following:
• The impact of multinationals on local firms. The competition from multinationals may drive
national firms out of the market. Multinationals have greater resources and strong brand identity,
so national producers may be unable to compete. Countries may have competition laws to prevent
this negative aspect of multinational activity.
• Multinationals may stifle the development of entrepreneurial skills in the economy as local
businesses cannot compete.
• The profits of multinationals may be repatriated to the country of origin, benefiting shareholders
abroad rather than local citizens.
• Multinationals may take their investment elsewhere if market conditions change or
opportunities arise.
• Multinationals may exploit the local workforce, paying lower wages and offering few of the
benefits offered to employees in their base country.

Activity 6.11
1 Reasons may include:
• To reduce costs. The biofuel may be cheaper than usual jet kerosene. Cost savings will give a
competitive edge to Virgin, as these will allow it to reduce prices. Reducing costs will make Virgin
more profitable.
• To generate publicity. Environmental issues are increasingly newsworthy as concern grows about
global warming. The publicity generated provides free advertising for Virgin.
• To increase sales. As Virgin is claiming that the use of biofuel is less polluting than normal jet
kerosene, this may attract customers who are concerned about their carbon footprint. It would be
a USP for Virgin and could enable them to charge higher prices as demand is less price elastic.
• Corporate social responsibility. Virgin may be genuinely committed to measures to reduce its
impact on the environment as it recognises its responsibility to wider society. Reducing the use of
normal jet kerosene will reduce pollution and the external costs associated with it.
2 By highlighting environmental and other issues related to corporate social responsibility, pressure
groups can influence business decisions.
• Virgin’s use of biofuels is a response to criticisms of the carbon emissions of airlines. This may
increase costs and therefore prices.
• If the accusation of greenwashing is widely accepted by consumers, Virgin will gain little from the
widespread publicity and may even lose out. If consumers do not believe that Virgin is genuinely
interested in reducing air pollution, they may take their custom elsewhere. This may force Virgin to
pay for independent social audits to give credibility to its environmental policies.
• The publicity is potentially beneficial to Virgin’s image and reputation.
• Business passengers may, or may not, be influenced by the environmental credentials of Virgin.
They are, perhaps, more likely to make decisions based on price, convenience and comfort of
travel. Therefore, when making decisions, businesses may ignore groups such as Greenpeace and
Friends of the Earth.
Evaluation could include a discussion that the impact of pressure groups on business decisions will depend
on the amount of support those groups have and the costs to business of making changes to operations.

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Activity 6.12
1 Learners’ answers might include:
• Making more efficient use of resources will increase output from given inputs.
• Reducing waste will reduce costs.
• Better insulation of buildings will reduce energy costs.
• Using more fuel-efficient vehicles will reduce transportation costs.
• A reputation for CSR may enable higher prices to be charged.
• Investment in new technologies may reduce production costs.
• Analysis should include, in each case, development of how either lower costs or higher revenue will
increase profits of the business, making these socially responsible decisions.
2 Learners’ answers might include:
• Shell will potentially enjoy increased sales if consumers are convinced that it is the leading multi-
national in economic, environmental and social responsibility. Green consumerism is increasing
and higher sales may lead to higher profits.
• Improved reputation will reduce the negative publicity that Shell has traditionally suffered from.
• It will provide a competitive advantage to Shell. Through differentiating itself from the
competition, Shell can justify charging higher prices without a resultant drop in demand.
• It will be easier to recruit and retain high-quality staff. This will reduce costs in the long term.
• There may be long-term cost savings from adopting environmentally friendly strategies. For
example, reducing energy use and increasing levels of recycling save the costs of waste disposal.
• Shell will have to alter its behaviour substantially to become the leading multinational in
economic, environmental and social responsibility. This may be costly. Shell is competing in
industries that naturally have a significant environmental impact (petroleum and chemicals are
core activities). To be responsible, Shell will have to invest substantially in new technologies and
tighten practices to prevent accidents.
• Shell will have to ensure fair treatment of all workers and this means implementing high standards
of health and safety and providing good wages.
• Shell may have to reconsider contracts with governments that are considered to be corrupt and so
may have to end operations in some countries.
• Shell will have to pay for independent social audits to convince the public that it really is socially
responsible. Further, Shell will have to act on the audit findings.
• Failure to apply high standards will lead to negative publicity. Shell will find itself subject to much
scrutiny if it is seen as being socially responsible.
Evaluation: a simple way to evaluate may be to contrast the potentially high short-term costs of
improving social responsibility with the long-term benefits.

Exam-style questions
Decision-making questions
1 Petrobras cleans up poor safety and environmental record
1 Evidence of putting the interests of investors first includes the following:
• Record profits.
• A poor safety record indicates that Petrobras has failed to consider the welfare of employees.
The recent explosion on its offshore platform may indicate that reducing costs was put ahead
of employee safety, e.g. the oil platform did not undergo the normal eight-month test phase.
• Equipment is outdated and therefore more dangerous. The lack of investment in new
equipment helps enhance short-term profitability.

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• A number of oil spills reflects insufficient protection of the environment and imposes costs
on society.
• Industrial waste goes untreated. This imposes costs on society.
• Employees have a poor attitude towards the environment and safety. This may indicate
poor training.
2 Learners’ answers might include:
• Bad publicity surrounding the accidents and pressure-group activity highlighting the
environmental impact of Petrobras. This could lead to a loss of custom.
• Increased difficulty in recruiting and retaining employees as a result of both the environmental
and the safety record of the business. The death of ten workers will give Petrobras a bad
reputation within the industry and deter skilled workers from working for the company.
• Loss of life and non-fatal accidents may lead to legal action over health and safety, and could
result in substantial fines and compensation.
• The long-term costs of accidents may be too great. For example, although its oil platforms are
insured, Petrobras will face increasing insurance premiums as a result of the number of accidents.
3 The case clearly indicates some of the drawbacks of Petrobras’s negligent approach to ethics and
the environment.
Drawbacks of high ethical and/or environmental standards
• Increased costs. High ethical standards will, in the short term, increase business costs, e.g.:
• Paying fair wages to workers.
• Increasing expenditure on health and safety, e.g. having to train workers properly and
invest in necessary safety standards.
• Increased costs of investing in cleaner technology.
• Cost of sourcing Fairtrade products and auditing that suppliers are ethical.
• Missed opportunities to collude with other firms to fix markets. This increases the prices they
are able to charge to consumers and therefore increases profit.
• Lost sales due to refusal to bribe corrupt governments and organisations.
• Missed opportunities to boost sales through unethical marketing techniques, e.g. persuasive
advertising of toys to children.
Benefits of high ethical and/or environmental standards
• Prevents prosecution and fines. For example, poor health and safety policies could lead to
injury of employees and claims for compensation. Failure to ensure the safety of consumer
products may also lead to legal action and negative publicity.
• Prevents the negative publicity and loss of sales that may arise from unethical behaviour.
• High ethical standards are likely to make recruitment and retention of skilled staff easier. This
will reduce the long-term costs of the business.
• An ethical code can be used as a marketing tool for the business to attract customers and
differentiate the firm from competitors.
• High environmental standards can reduce costs in the long term, e.g. greater efficiency in
energy use.
• The environment is increasingly a significant factor in the spending decisions of consumers.
Therefore, businesses with low environmental standards risk demand decreasing.
Evaluation is likely to focus on the question of the long-term impact of high ethical and/or
environmental standards in increasing consumer and employee loyalty. However, the effect will
also depend on the following:
• Society’s attitude towards ethics and the environment. In many countries, it is an increasingly
important consideration for consumers.
• How ethical competitors are. If competitors have low environmental standards, a firm will be
at a cost disadvantage if it adopts high standards itself.

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• The nature of the unethical behaviour, including whether it contravenes the law and might
lead to legal action.
• Whether there are sufficient ethical consumers for high standards to really matter.
2 Social audits – measuring corporate social responsibility
1 An audit examines the social impact of a business and compares performance with objectives.
Benefits for Exxon: corrects poor reputation; changes Exxon’s reputation to the best in the
industry; gains favour with stakeholders. Benefits for Soft Touch: being a social enterprise fits with
objectives; gains funding. Learners should also support answers with evidence from their own
research.
2 Learners’ answers might include:
• Large businesses have a greater number of stakeholders, so there are more people to view a
social audit.
• There is a greater risk of negative PR and media or public interest in large businesses because
their activities have a more substantial impact on society.
• Social audits can be expensive and, therefore, smaller businesses do not have sufficient
resources to pay for them.
• The public may be more suspicious of the activities of big business and therefore need to be
reassured that their behaviour is socially responsible.
• Charities may be subject to greater external scrutiny of their activities. Therefore, whether a
charity is large or small, social audits are important.
Evaluation: the cost of conducting a social audit, relative to the benefit, is often too great for
a small business. The need for a social audit will depend on the extent to which the activities
of a business have significant impacts on society. Therefore, a social audit is more likely to be
worthwhile for a large business.
3 Dangerous toys recalled
1 Yes, the toys should have been withdrawn
• Legal issues. If found out, Fisher Price and Mattel could face legal action and fines.
• Loss of sales. If consumers or trading standards officers had discovered the high levels of
lead in the paint, this would have caused catastrophic publicity for Fisher Price and Mattel,
particularly as this relates to toys for children. Such publicity would potentially lead to a
significant decline in demand, in both the short and the long term.
• Brand image. Both companies are leading brand names. Bad publicity would undermine their
brand images, which have taken years to build.
• Swift action by Fisher Price and Mattel reinforces their reputation for quality and customer
care.
• It would be unethical to supply the toys with high levels of lead.
• Corporate social responsibility. Fisher Price and Mattel have a responsibility to stakeholders
such as customers.
• The paint breached their own specification, and therefore undermines quality.
No, the toys should not have been withdrawn
• One view is that a company’s first responsibility is to its shareholders. Recalling millions of
toys will cost thousands of dollars in lost sales and reduce profit.
• The recall draws attention to the problem which otherwise might have gone unnoticed.
Consumers may doubt the safety of other toys made by Mattel and Fisher Price, leading to a
loss of sales.
Evaluation may contrast the short-term benefit of not taking action against the potentially
damaging long-term consequences if consumers find out about unethical behaviour. As this has
a direct impact on consumers, it is particularly important that the two companies withdraw the
dangerous products.

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2 Persuasive advertising aimed at children is acceptable

• Ultimate responsibility for deciding whether a toy is purchased lies with parents.
• In many countries, advertising aimed at children is accepted.
• Children are aware of what advertising is and have an understanding of its purpose.
• A business has responsibility to its owners. Businesses exist to make profit; advertising is just
one element of the marketing mix at a firm’s disposal to influence customers. Pursuing profit is
good for society as a whole.
• Advertising helps fund television for children. Some of this TV output is educational and
arguably beneficial for the development of the child viewer.
• As long as the advertising is not misleading, it is acceptable.
Persuasive advertising aimed at children is unacceptable
• Younger children are vulnerable to persuasive advertising and do not have the capacity to
make decisions about what toys are good or bad for them.
• Direct advertising to children leads to parents being pestered. The pressure to buy can be
great. This becomes a particular problem when parents are pressured into buying toys they
cannot really afford.
• Businesses have a social responsibility to their stakeholders. They should take into account the
consequences of their marketing decisions.
• Advertising is a cost to business and simply leads to higher prices for goods.
Evaluation may depend on a number of factors:
• The type of toy being advertised. Is the toy beneficial to a child’s education and development?
• The issue may be one of controlling advertising rather than banning it, e.g. controlling the
content of adverts and the times at which adverts can be televised. These controls would
reduce the exposure of children to advertising.
• The age group at which the toy is aimed. Older children are more able to recognise what is
good or bad for them.
4 Volkswagen (VW) clean diesels – the claim that was not true
1 Learners’ answers might include:
• VW will need to act quickly and take comprehensive measures to reassure the public that this
type of activity will not happen again.
• Public relations campaigns to rebuild the brand image. This may require the CEO to apologise
to customers.
• Advertisements in the national press to apologise.
• Recall vehicles immediately to carry out remedial work.
• The CEO and other directors may have to resign and a new board be appointed to
demonstrate the company is changing.
• Compensation paid to customers.
2 Learners should define greenwash. Possible consequences of untrue or greenwash environmental
policies include:
• Pressure-group activity will generate negative publicity.
• Compensation may be paid voluntarily but it is likely the company will be prosecuted in the
courts for misleading the public. Substantial fines will have to be paid. This will reduce profits.
• The business may have to engage in expensive public relations to repair damage to the brand.
• Loss of confidence in the brand will result in lower sales as customers switch to competitors.
• However, in evaluation, it is possible that VW’s brand is sufficiently well established that the
long-term effect is not significant. Other manufacturers have also misled the public.

11 Cambridge International AS & A Level Business – Stimpson & Farquharson © Cambridge University Press 2021
 CAMBRIDGE INTERNATIONAL AS & A LEVEL BUSINESS: TEACHER’S RESOURCE

5 South Africa accelerates its car production

1 Learners’ answers might include:
• Financial incentives are provided. These reduce the cost of setting up production in South
Africa through, for example, providing multinationals with a contribution to the capital cost
of factories.
• There is significant unemployment in South Africa and, therefore, wages are relatively low
compared to countries such as Germany. Recruiting workers is easy, e.g. when 23 000 people
turned up in the hope of replacing 1 300 sacked VW workers.
• South Africa has emerged as a leading supplier of automotive components such as catalytic
converters. The ready availability of components is attractive to car manufacturers. There are
hundreds of small and medium-sized local suppliers, so it is a highly competitive market. This
has driven up productivity and quality to the benefit of the multinational producers.
2 Advantages
• Employment for locals, e.g. the Mercedes investment will create 800 direct jobs and 3 000 jobs
in the supply industry. Reducing unemployment will increase living standards.
• Greater spending by workers creates demand for other businesses.
• There is more demand for suppliers.
• Improvements to infrastructure. Investment will facilitate the building of ports and transport links.
• New technologies imported into the country. This raises productivity.
• Taxation of profits and employee incomes boosts government revenues.
• Export earnings, e.g. BMW will export 30 000 3-Series cars.
Disadvantages
• The impact on South African firms. Competition from multinationals may drive national
firms out of the market. Multinationals have greater resources and strong brand identity, thus
national producers may be unable to compete. However, the case study suggests that the South
African car industry was in a mess before the arrival of BMW and others.
• Multinationals may stifle the development of entrepreneurial skills in the economy as local
businesses cannot compete.
• The profits of the multinationals may be sent back to their country of origin, benefiting
shareholders abroad rather than the citizens of South Africa.
• Multinationals may take their investment elsewhere if market conditions change or
opportunities arise, e.g. IBM decided to leave South Africa.
• Multinationals may exploit the local workforce, paying lower wages and offering few of the
benefits offered to employees in their base country.
An evaluative answer will provide a balanced analysis of the advantages and disadvantages of
multinational investment whilst reaching a conclusion either in favour of or against support for
further investment. In this case, a valid conclusion may reflect that multinational investment is
desirable in some but not all industries, depending on whether there is a fledgling national industry
that merits protection.
Further, the cost of extra government support should be balanced against the potential benefits
to South Africa of that support and consideration of how else the government could spend that
money.

12 Cambridge International AS & A Level Business – Stimpson & Farquharson © Cambridge University Press 2021