Leaving CertifiCate 2012 BUSINESS. folens Business examination PaPers. John O Connor

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1 Leaving CertifiCate 2012 BUSINESS teacherõs ManuaL/soLutions to abqs in folens Business examination PaPers John O Connor

2 Design & Layout Paula Byrne Oisín Burke ISBN: John O Connor 2011 Produced in Ireland by Folens Publishers Folens Publishers Hibernian Industrial Estate, Greenhills Road, Tallaght, Dublin 24 The Publisher reserves the right to change, without notice, at any time the specification of this product, whether by change of materials, colours, binding, format, text revision or any other characteristic.

3 CONTENTS Solutions to ABQs Based on Units 4, 5 and 6 for the Leaving Certificate 2012 Past paper ABQs 2007 McGComputers Inell Ltd... 3 Additional ABQs Brandon Ellis Ltd... 5 Crown Technologies... 7 Medical Supplies Ltd... 9 Project Development Ltd Solution to ABQ p342 Global Business Solution to ABQ p343 Global Business Solution to ABQ p344 Global Business Solution to ABQ p345 Global Business Year No. of candidates Official Leaving Certificate Business Results A1 A2 B1 B2 B3 C1 C2 C3 D1 D2 D3 E F NG (H) , (H) , (H) , (H) , (H) , (H) , (H) , (H) , (H) , (H) , (H) , (H) , (H) , (O) , (O) , (O) , (O) , (O) , (O) , (O) , (O) , (O) ,

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5 (A) McGComputers (LC 2007) [Page 47 in Folens Exam Papers] SOLUTION/MARKING SCHEME 20 Marks (4 x 5 marks) Market research is the gathering, recording and analysing of all relevant information, both quantitative and qualitative, about what the market requires, and the transfer of those goods through appropriate channels from the manufacturer to the final consumer. Methods of market research used The following methods of market research are used in the business: 1. Field research (also called primary research) 2. Desk research (also called secondary research) 1. Field research This involves researching the market by contacting people in the target market to obtain their opinions on the firm s products and/or services. The following methods may be used: Interviews Questionnaires Surveys e.g. Siobhán has held focused discussions with groups of customers. 2. Desk research This involves using internal and external information that is available to management. Internal information includes information that is on file. e.g. sales, market research, reports External information includes information from the Central Statistics Office (CSO), EU trade statistics, government reports and information on the internet. e.g. Jason responded to published official forecasts and trade publications and recruited sales people. The internet could easily be used to develop market research for the business by downloading information from competitors websites and updating the firm on government and media reports. e.g. Siobhán would like to add a website design service. (B) 30 Marks (5 x 6 marks) The following types of insurance are appropriate: 1. Motor insurance: This is compulsory by law and provides cover in the event of an accident. e.g. The firm has five service vehicles on the road. 2. Fire insurance: This is insurance against damage to the premises by fire. e.g. The firm holds presentations on its premises. 3. Fidelity guarantee: This is insurance against theft by employees. e.g. Jason recruited sales staff and technicians. The firm now has 12 employees. 4. Public liability: This is insurance to protect against injury incurred on the premises. e.g. The firm hosts product presentations and demonstrations on its premises for its customer base. 1

6 5. Employee liability: This is insurance to protect employees against injuries incurred at work. e.g. The firm has employees working on five service vehicles so employee liability cover is essential. (C) 30 Marks (5 x 6 marks) 1. This firm is a sole trader business. e.g. It was founded by Jason McGinley, who is now a self-employed person. 2. This type of business is easy and quick to form, with few legal formalities. 3. The sole trader is the sole boss who invests money, makes decisions, has to work longer hours than employees and has unlimited liability. e.g. The new venture forced him to adjust to working long hours. 4. Lack of capital for investment and expansion is the usual reason sole traders have difficulty competing in the market. e.g. The new venture had to manage with limited financial resources. Evaluation In my opinion, Jason McGinley is taking a huge financial and personal risk by operating the business as a sole trader. I recommend that he change the legal status of the business to Private Limited Company. Reasons why he should form a Private Limited Company: 1. Only one shareholder is now required by the Companies Act. e.g. Jason McGinley could be the only shareholder. 2. He (and all other shareholders) will have the protection of limited liability in the event of the business ceasing to trade. e.g. As a sole trader, he has unlimited liability. His daughter Siobhán, a graduate, has joined the firm and in a Private Limited Company would also have limited liability as a shareholder. 2

7 INELL LTD (LC 2002) [Page 94 in Folens Exam Papers] SOLUTION/MARKING SCHEME (A) 30 Marks [5 x 6 (3 + 3 for the link)] The importance of good employer and employee relationships: (i) An improved service to customers which in turn leads to increased sales and business growth. e.g. The growth of the business in Ireland has been good in the 20 years since its foundation. (ii) Staff are highly motivated, this is good for staff morale and enables management to implement changes. e.g. Management believe in the empowerment of their employees and have given them the chance to prove themselves at every opportunity. (iii) The employer recognises the importance of its social responsibilities to its employees. e.g. Management is aware that one of their manufacturing plants is not modern enough for environmental standards. This has led to some minor accidents. The importance of the Human Resource Department in the Employer and Employee relationship: (iv) It enables open communication between both sides. This allows management to explain to employees relevant information and concerns in relation to changes being considered or implemented. e.g. Patrick feels that for the business to survive into the future it should expand into the home, European and world market. Michael feels that the risks are too high. (v) It ensures that recruitment procedures are good in order that top quality staff are employed. e.g. Michael and Patrick Murphy have surrounded themselves with the best technically qualified and enterprising employees. (B) 30 marks (2 x 15 [ for name/information/link]) The following strategies could be used to successfully expand the business: (i) Diversification Inell Ltd has the brand quality in farm machinery. By diversifying into complementary products, it spreads the risk and eliminates Michael s concerns. e.g. Michael feels that the risks are too high if expansion of the farm machinery takes place not only on the homemarket but also in European and world markets. 3

8 (ii) Takeover of a competitor [External expansion] Take over an established competitor that is located in a different area. This type of expansion will enable Inell Ltd to consolidate and increase market share and profits. e.g. Michael s concern that losses will result from internal expansion will no longer exist. (C) 20 marks (4 x 5 marks, i.e ) Inell Ltd could become a more socially responsible business as follows: (i) To its employees By paying them fair wages and providing them with good working conditions and opportunities. e.g. They give the employees the chance to prove themselves at every opportunity. (ii) To its customers To produce and sell top quality products at fair prices. This involves ensuring that production facilities are efficient and modern. e.g. The technology in two of its plants is old and requires modernisation. (iii) To society It is important that conflicts between the business and society be resolved. Pollution problems are a health hazard and will lead to conflict. e.g. Minor accidents in the plant have resulted in media publicity criticising Inell s attitude to the environment. By modernising the plant, the business will become more socially responsible. (iv) To the shareholders The objective of business is profit. The business is responsible for ensuring that the shareholders earn a fair return on the capital invested. e.g. The growth of the business in Ireland has been good for 20 years. 4

9 BRANDON ELLIS (IRELAND) SPORTSWEAR LTD [Page 117 Folens Exam Papers] SOLUTION/MARKING SCHEME (A) 20 marks (4 x 5 [3 + 2 for link]) The main benefits of internal recruitment to a firm like Brandon Ellis are: (i) Employee morale should remain high as employees will know that hard work will be rewarded by promotion within the organisation. e.g. Brandon Ellis have always favoured internal recruitment as a means of keeping staff morale high. (ii) Existing employees know how the firm operates and so will need very little training or induction. This will save the company time and money. e.g. Aoife Bradley believes it is vital to select a person who knows the business and how it works since many important projects require urgent completion without major disruption. (iii) The management of the firm know in advance the type of person they are recruiting as they have already worked for them in a different capacity. e.g. Aoifa Bradley also believes it is vital to select a person whose track record is known to the organisation. (iv) Employees should remain loyal to the organisation if they see the organisation remaining loyal to them. This should lead to lower staff turnover and ensure that the firm can hold on to key employees. e.g. Brandon Ellis have always favoured internal recruitment as a means of improving loyalty and trust between management and employees. (B) 20 marks (4 x 5 marks [3 + 2 for link]) The following features about Brandon Ellis would be characteristic of a multinational company: (i) A multinational is a company that has its headquarters in one country and operates branches in many other countries. e.g. From their beginnings in Texas, USA, Brandon Ellis Sportswear have expanded globally and are now located in ten countries worldwide. (ii) MNCs are attracted to set up branches abroad for various reasons, including the generous grants and incentives available from other countries. e.g. Brandon Ellis sought out locations which offered the necessary supply of raw materials, sufficient skilled labour and the best tax and other Government incentives available. (iii) Most of the major decisions are made by the head office and communicated to the various subsidiaries using up-to-date communications technology. e.g. Most important decision making is done by the Texas headquarters with ongoing communications between Brandon Ellis and each subsidiary using the most advanced communications facilities available. (iv) MNCs usually set up plants in a country with the intention that this plant will serve a number of other countries as well. e.g. Brandon Ellis Sportswear uses its Irish subsidiary to service the rest of the European Union market. 5

10 (C) (i) (10 marks 2 x 5 marks [3 + 2 for link]) Defensive reasons refer to when a firm expands in order to reduce the business risks they are facing. e.g. One of the reasons for the expansion of Brandon Ellis was to protect its supply of raw materials Aggressive reasons refer to when a firm expands because it is one of their business objectives. e.g. Brandon Ellis s objective to be the largest and most profitable manufacturer and supplier of sportswear in the world was the motivation for them to continuously seek out suitable locations for expansion. (ii) 30 marks (3 x 7 marks ( for link) and 1 x 9 marks ( ) The main risks facing a business like Brandon Ellis are: 1. Cost Control (1 mark) Increasing costs can cause a firm to become uncompetitive in relation to their competitors. Firms of all size must keep a strict control on costs, which means keeping wages and other costs such as advertising and administration under tight control. In addition, materials should be purchased economically to avail of economies of scale. (4 marks) e.g. One of the factors influencing the expansion of Brandon Ellis was the need to keep costs under control. (2 marks) 2. Competition (1 mark) New competitors entering the market and eating in to the firms market share or maybe competitors locating in a low cost area thereby being in a position to produce more cheaply. Firms could attempt to eliminate competition by merging with or taking over related and similar businesses, though in doing this they would be subject to the relevant competition rules. (4 marks) e.g. A policy of buying up a diverse range of medium sized companies in various countries and amalgamating them into the Brandon Ellis group further ensured the stability, survival and profitability of the overall group. (2 marks) 3. Shortage of Raw Materials (1 mark) All firms from time to time and for various reasons may face a shortage in the supply of essential raw materials necessary for production. Firms like Brandon Ellis can reduce this threat to a continuous supply of raw materials by entering into exclusive contracts with suppliers or by expanding the business to take over the suppliers business. e.g. One of the factors influencing the expansion of Brandon Ellis was the need to protect supplies of raw materials. (2 marks) 4. Falling Demand (1 mark) For a variety of reasons, the firm may experience a fall in demand for a particular range of products. It is important therefore, that global firms protect themselves from being over exposed to one particular area of business. (4 marks) e.g. Brandon Ellis have been careful to protect themselves from being over exposed in any particular area through a policy of buying up a diverse range of medium sized companies in various countries and amalgamating them into the Brandon Ellis group. (4 marks) 6

11 CROWN TECHNOLOGIES [Page 118 Folens Exam Papers] SOLUTION/MARKING SCHEME (A) 20 marks (4 x 5 marks [3 + 2 for link]) The following are the benefits to a firm of preparing a cash flow statement: (i) A cash flow statement can be used by a firm to support an application for a bank loan. e.g. Stephen is required to bring the completed application form as well as a cash flow statement for the business to the meeting to discuss his loan application. (ii) A cash flow statement shows a business at what time and in what quantities cash is expected to flow into and out of the business. e.g. The bank stressed the importance of the cash flow statement to enable them to see clearly what funds are currently coming into and going out of the business and so be able to establish the ability of Crown Technologies to meet the repayments on the loan. (iii) A cash flow statement helps a business to identify times of high expenditure and times therefore when cash flow problems may occur. e.g. We are told that the cash flow statement will also help Stephen to identify periods of high expenditure when repayments would be difficult. (iv) A cash flow statement helps to solve cash flow problems by showing where expenditure needs to be reduced or where payments can be re-arranged. e.g. We are told that the cash flow statement will also help Stephen to consider ways to overcome any cash flow difficulties. (B) 20 marks (4 x 5 marks [3 + 2 for link]) It is important for firms like Crown Technologies to conduct research into new products before commencing full production for the following reasons: (i) Research reduces the risk of products failing because it will establish at an early stage the prospects for success or failure. e.g. We are told that as there are so many firms working on similar software development, it is vital that Crown Technologies get it right in order to reduce the risk of the product failing. (ii) Research will tell the firm what aspects of the proposed new product appeal to customers and this will assist them in producing and marketing a final product which most satisfies the needs of customers. e.g. Stephen expects that the research will reveal aspects of the new software which appeal to customers. (iii) Research will help the firm to establish who exactly their target market is as well as the size of this market. e.g. Stephen expects that research should give an accurate idea of the size of the potential market. 7

12 (iv) Research will help to identify future needs of a firm and this will assist them in planning further new products. e.g. Stephen expects the research to help him establish other areas where customer needs are not currently being met to enable the firm to remain innovative and ahead of the competition. (C) (i) 10 marks (2 x 5 marks (3 + 2 for the link) The following help is available to support and promote indigenous Irish firms: 1. Financial aid is available to any person wishing to start his or her own business through the County Enterprise Boards. e.g. Crown Technologies was set up in 1997 as a direct result of programme of incentives from the Government to encourage people to set up indigenous Irish companies. 2. Assistance in the area of tax relief, training grants, mentor scheme, etc. are offered to new businesses to help to ensure their long term success. e.g. The firm operates from a leased unit in an Enterprise Business Park. (ii) 30 marks 2 x 8 (6 + 2) + 2 x 7 (5 + 2) Indigenous Irish firms benefit the local economy in the following ways: 1. They are a major source of employment for the economy by providing jobs both for their founders and others who work for them. e.g. Crown Technologies now employ a large number of highly skilled graduates and technology experts. 2. Indigenous firms are likely to stay in Ireland even during periods of recession whereas the transnationals may close down and re-locate. e.g. Stephen s is trying to secure a wide customer base so that he will be able to continue in business even if some of the large transnationals he currently services decide to leave Ireland. 3. Indigenous firms are likely to support the local economy in which they operate through sponsorship and involvement in local issues and initiatives. e.g. Crown Technologies has built up a good reputation in the local economy where they have been active in the sponsorship of local events and in facilitating company visits by local schools and other organisations. 4. They provide a support to other small businesses in the area by sourcing their materials from them as well as when their employees spend their wages in the local shops, entertainment venues, etc. e.g. Crown Technologies operate a policy of sourcing their materials such as packaging and labelling from local providers where possible. 8

13 MEDICAL SUPPLIES LTD [Page 119 Folens Exam Papers] SOLUTION/MARKING SCHEME (A) 20 marks Yes, I think Medical Supplies is a socially responsible company. (2 marks) A company like Medical Supplies has social responsibilities towards its stakeholders. 18 marks (3 x 6 [ ]) (i) Customers (1 mark) A company should be socially responsible towards its customers, i.e. producing safe products and dealing with customer concerns and complaints quickly and efficiently. (3 marks) e.g. Before any new product is produced at the plant, detailed research is carried out to ensure its safety for customer use. (2 marks) (ii) Employees (1 mark) A company should be socially responsible towards its employees, i.e. paying fair wages and providing a safe and healthy working environment. (3 marks) e.g. Employees are paid above the industry norm and working conditions at the factory are described as excellent. (2 marks) (iii) Local Community (1 mark) A company should be socially responsible towards the community in which it is located, i.e. taking community concerns about environmental and other local issues on board. (3 marks) e.g. Only this week, following lengthy discussions with local community groups, Mary Ryan personally oversaw the installation of a state of the art system for disposing of factory waste. (2 marks) (B) 20 marks (3 x 10 ( for links) There are a number of sources of new product ideas which are used by firms like Medical Supplies. These include: (i) Research and Development (2 marks) Here the firm sets up and finances an in-house research and development section which would have the responsibility for carrying out research into new product ideas and carrying out the necessary development work to see if these products would be viable. (4 marks) e.g. Each subsidiary has its own research and development department, which is well staffed with the top scientists and medical researchers available. Investment in the research and development facility accounts for the single largest investment by Medical Supplies in each of its plants. (4 marks) 9

14 (ii) Brainstorming (2 marks) This is where a group of staff members meet and throw out ideas about possible new products. The better ideas are then discussed in more detail at a later stage. (4 marks) e.g. Regular brainstorming sessions are held among the research staff at Medical Supplies as a means of coming up with new product ideas. (4 marks) (iii) Customer feedback Many firms make use of feedback from their customers either in the form of complaints and comments or research to help them come up with new product ideas. e.g. Medical Supplies have recently formed consumer panels to assist management in understanding the needs of the market. (C) 30 marks A performance appraisal takes the form of an interview between the Human Resources Manager and the employees in order to determine how well they are performing. (6 marks) A system of performance appraisal should benefit Medical Supplies in the following ways: 24 marks 4 x 6 (4 + 2 for link) (i) Staff morale will rise as employees know that hard work will be recognised and rewarded. (3 marks) e.g. Michael introduced the idea of performance appraisal to Mary Ryan as a means of tackling the growing problem of falling morale among some sections of the workforce. (3 marks) (ii) Employees who are not performing satisfactorily will be identified and appropriate corrective action can be taken. (3 marks) e.g. Michael believes that such an appraisal will help the firm to show up any problems which employees may be experiencing. (3 marks) (iii) Job satisfaction should improve and this should in turn improve the efficiency and profitability of the organisation. (3 marks) e.g. Michael sees performance appraisal as a means of helping employees to maximise their performance and improve their job satisfaction (3 marks) (iv) Performance appraisal helps to identify employees who are suitable for promotion. (3 marks) e.g. Michael believes that such an appraisal will help in identifying employees who are suitable for promotion. (3 marks) (v) Industrial relations problems at the firm may be reduced due to the higher level of morale and job satisfaction. (3 marks) e.g. Michael told Mary Ryan that he believed that if the issue of falling morale is not dealt with, it may lead to major industrial relations problems in the future. (3 marks) 10

15 PROJECT DEVELOPMENT LTD [Page 120 Folens Exam Papers] SOLUTION/MARKING SCHEME (A) 20 marks (i) 4 marks A job description is a statement of the duties and responsibilities of a particular job. (ii) 16 marks (4 x 4 marks [2 + 2 for link]) The following details could be included in the job description for the position. 1. The title of the job e.g. Project Development Ltd are looking for a Marketing Executive. 2. The responsibilities of the job e.g. The new executive will be responsible for the public relations functions of the firm as well as research gathering and analysis. 3. The person to whom the successful applicant will report e.g. The new executive will report directly to the Marketing Manager. 4. The qualifications and experience required by prospective applicants e.g. The new appointee will have a degree in marketing, a foreign language and at least three years experience in a similar position. (B) 20 marks (4 x 5 marks [3 + 2 for link]) The following are the main functions of the public relations officer of a large organisation: 1. To handle all communications regarding the activities of the organisation. e.g. Project Development Ltd will have to engage in regular communication, not only with all sections of the media but also with local community groups, local and national public representatives and contractors. 2. To attend national and international seminars, trade fairs and exhibitions as a representative of the firm. e.g. The new Marketing Executive will be expected to attend national and international seminars on community development and regeneration. 3. To organise the sponsorship of local and national events. e.g. Project Development Ltd is planning to get involved in the sponsorship of a major local sporting event and the new executive will be responsible for sourcing the project which will give the firm the most exposure and value for money. 4. To prepare reports to highlight the firm s activities for both internal, i.e. employees and management, and external, i.e. investors, customers, parties. e.g. The new Marketing Executive will be responsible for producing regular reports on the progress of the multi-million euro regeneration project. 11

16 (C) 40 marks (5 x 8 [6 + 2 for link]) Local community development initiatives can bring many benefits to an area like Kentown. (i) Jobs will be created for local people. This will not only reduce unemployment but will also cut down on the number of people, particularly young people, who feel they have to leave the area to find work. e.g. The regeneration programme is expected to lead to new local jobs as units in the new business park planned for the outskirts of town have already been fully reserved. (ii) The commercial life of the area will improve. More people will have money to spend and so local shops, cinemas and pubs will benefit. e.g. A new town centre is planned which will have a selection of shops, entertainment centres and public areas. (iii) Local people take a greater pride in their area. They begin to take responsibility for their own destiny and look for solutions to problems rather than waiting for somebody else to solve their problems for them. e.g. The regeneration programme has the full support of all local community and sporting groups who have all given a commitment to work together to make the plan work. (iv) Social problems in the area should begin to decline. In addition, people are more likely to take action against those who continue to indulge in anti-social behaviour. e.g. A new community policing initiative will be introduced which will work with local groups to tackle the petty crime and anti-social behaviour which has affected the area for so many years. (v) People with young families may decide to move into the area. This will have a knock-on effect of raising the standard of living, getting improvements in infrastructure and creating a greater demand for services in the area. e.g. It is hoped that one of the knock-on effects of the regeneration programme will be an influx of young families moving back into the area to help it grow and prosper in the years to come. 12

17 Alice and Kevin Hyland [Page 342 Global Business] SOLUTION/MARKING SCHEME (A) 20 Marks (5 x 4 (2 + 2) Alice and Kevin should take out the following personal and household insurance policies. 1. Buildings Insurance (1) This insurance policy will cover the couple for any damage which may occur to their property from fire, flood, lightning or other disaster. (3) 2. Contents Insurance (1) This insurance policy will cover for any damage or loss which may occur to the contents of their home from fire, theft or accidental damage. (3) 3. Motor Insurance (1) This type of insurance is compulsory and will cover the couple from damage or injury they may cause to others as a result of their driving. They will also be covered if their car is stolen. For an additional premium they can get comprehensive insurance which will also cover damage to their car in the event of an accident. (3) 4. Permanent Health Insurance (1) This type of insurance is very important for young people who are working. It will pay an income to the insured person in the event that they have to give up work due to illness or disability. (3) 5. Mortgage Protection Insurance (1) This insurance policy will pay off the remaining balance on the couple s mortgage in the event that one or both of them have to give up work due to illness or disability. (3) (B) (i) (5 Marks) Sales promotion refers to all techniques, including advertising, undertaken to increase or encourage sales of a particular product or service at wholesale, retail or consumer level. The objective of sales promotion is to increase sales. (ii) (15 Marks = 3 x 4 (2 + 2) + 1 x 3) (1 + 2) The following forms of sales promotion could be successfully used by a financial institution when trying to sell their products and services to potential customers: 1. Free Gifts (1 Mark) In an effort to attract new customers, financial institutions offer a free gift to people who take out loans before a certain date. e.g. One bank was offering, potential customers a free weekend in a top Irish hotel. 2. Advertising (1 Mark) Many financial institutions allocate a large part of their marketing budget to advertising costs. Typically, financial institutions take out large advertisements in morning newspapers as well as full page advertisements in magazines particularly those aimed at the age group. They would usually mention such things as looking for a new car or fancy an exotic holiday in their advertisement trying to tempt people to consider borrowing money. 13

18 3. Special Offers (1 Mark) The financial institution may use special offers to attract potential customers to take out their loans instead of those of a competitor. e.g. These special offers may include such things as flexible repayments, and lower interest rates. 4. Competitions (1 Mark) Competitions with attractive prizes may be advertised to attract customers. e.g. The financial institution may offer to place the names of all people who apply for loans by a certain date into a completion with attractive prizes. (C) (i) Drawbacks (20 Marks i.e. [2 x 7 (4 + 3) + 1 x 6 (4 + 2)] 1. The absence of a profit motive in State enterprises may mean that they are less efficient than they would be in a competitive situation. In this broadcasting State firm there are rumours of the absence of a Profit motive. 2. State firms are often overstaffed resulting in a higher than normal wage bills. This can often hinder the firm in their bid to be competitive and keep costs down. In this State firm there are rumours of an overstaffing issue. 3. Because some state bodies have a monopoly there can be under productivity, as they have no incentive to provide an economical and efficient service. In this State firm there are rumours of an under productivity problem. (ii) Benefits of Privatisation to the firm. (20 Marks 1 x 8 [4 + 4] + 2 x 6) (4 + 2) The firm will benefit from privatisation in the following ways: 1. Costs will be reduced as the ineffective management structure will be replaced by a modern management structure which will remove excessive staff numbers and improve productivity. Excessive costs re overstaffing and underproductivity exist in the State firm. 2. The firm will be able to raise the necessary finance which will enable it to compete without having to resort to borrowing. Privatisation will allow the firm to raise money from private investors and members of the public. 3. The remaining employees may be in line for pay rises as incentive schemes, bonus schemes and profit sharing schemes are introduced. 14

19 IT Services Ltd [Page 343 Global Business] SOLUTION/MARKING SCHEME (A) Empowerment is where management delegates decision making responsibilities to employees who are closest to customers. This is good for staff morale and improves decision making. [4 marks] Benefits of Empowerment to IT Services Ltd. (16 Marks i.e. 4 x 4 [2 + 2 for each link]) 1. Customers should receive an improved service because they have been trained to do so. e.g. Peter Hogan believed that the staff could give an immediate and better service to the customer. 2. Staff morale and commitment is improved as the workers are now involved in decision making. e.g. Peter Hogan believed that introducing empowerment is good for staff morale as workers are more committed. 3. Output efficiency levels should increase. e.g. Costs are controlled. 4. Profits for the company should be satisfactory for the shareholders. e.g. By July 2004, profits were e1.2m from sales of e5m and business was booming. (B) (i) Potential benefits (5 Marks 3 [2 + 1] + 2 [1 + 1]) 1. There can be savings in areas such as advertising, research and development. e.g. There would be economies of scale. 2. It would enable the firm to widen its market base by selling into the huge UK market. e.g. The firm would be less dependent on the home market. (ii) 10 Marks (2 x 5 [3 + 2]) Peter Hogan s decision to establish a private limited company was wise for the following reasons: 1. To provide him and all other shareholders with the protection of limited liability. e.g. He set up a company called IT Services Ltd. 2. It encourages equity investors when the business is booming. e.g. By July 2004 the business was booming. 15

20 (C) (i) 5 Marks (1 x 5) It shows that the business is well organised and is aware of its strengths, weaknesses and what problems may arise in the future. (ii) 40 Marks Company Name Business Plan for IT Services Ltd (2) IT SERVICES Ltd. Marks 1 1 Owner (1) Peter Hogan and Mary Hogan 1 Registered Office 28 Thomas Street, Limerick 1 Solicitors Dillon & Co., O Connell Street, Limerick 1 Accountants Hynes Accountants, Abbeyfeale, Co. Limerick 1 Banker AIB, O Connell Street, Limerick 1 Managing Director (1) Peter Hogan 2 Date August 20, Services Offered (1) Computer services for industrial users. 2 Marketing (1) Existing contracts with 300 clients in Ireland. Potential target market of 2,000 customers in the Euro market Advertising on the internet and using is a suitable way to contact potential customers Pricing Policy (1) Since a quality service is important a high pricing policy is justified, even when seeking out new markets. 2 Finance Required (2) 41 million 6 year term loan. Based on existing profit levels of 41.2 m there is little risk to the bank 4 4 Profit Projection (2) Euro Market Home Market Year 2005 Profits 200, m 1 Year 2006 Profits 600, m 1 Year 2007 Profits 800, m 1 Signed: Peter Hogan (2) 16

21 McCabe s Transport [Page 344 Global Business] SOLUTION/MARKING SCHEME (A) 20 Marks i.e. 5 x 4 (2 + 2) 1. Motor Insurance (2 Mark) E.g. As an operator of coach transport, Patrick should take out fully comprehensive insurance to cover damage to his vehicles from accident or theft. Coaches could cost a lot of money to repair and this could place the business in financial trouble if they had to come up with the money themselves because of inadequate insurance. (2 Marks) 2. Publicity Liability Insurance (2 Mark) E.g. McCabe s transport carry members of the public on trips all through the year. Public liability insurance is essential to cover any claims which may be made against them for injuries or death to any of their passengers as a result of their negligence. (2 Marks) 3. Employer s Liability Insurance (2 Mark) E.g. He has four employees. Employer s liability insurance will cover him against any claims made by employees who are injured in the course of their work. (2 Marks) 4. Vehicle Breakdown Insurance (2 Mark) E.g. This insurance policy would cover McCabe s for the cost of repairing and towing broken down coaches to a local garage. This would be particularly important if McCabe s were doing any long distance travel especially travel abroad. 2 Marks) 5. Pay Related Social Insurance (PRSI) (2 Mark) E.g. This insurance must be paid by each employer for each of their employees. The amount is calculated as a percentage of the employees salary and is sent to the Revenue Commissioners. (2 Marks) (B) (i) 16 Marks [4 x 4 (2 + 2)] Reasons why he wishes to expand the business. 1. To avail of business opportunities which will be available to a bigger firm. E.g. He knows he must expand if he wants to bid for new commercial routes that will be available. 2. To be able to resist changes taking place in the market which will affect his business. E.g. He is conscious of the impending deregulation of the public transport market. 17

22 3. He is ambitious and wants to expand the business he established in E.g. Patrick McCabe showed ambition and he knows changes are essential if he is to grow the business. 4. He will become part of the management of the expanded business. E.g. He will become managing director and be more involved in administration (B) (ii) The business is involved in the Tertiary industry. (4 Marks) (C) (i) 25 Marks [2 x 9 (6 + 3) + 1 x 7 (5 + 2)] Benefits of operating a Private Limited Company 1. To allow shareholders enjoy the benefit of limited liability so personal assets are protected if the company goes bankrupt. E.g. Patrick McCabe has operated the business as a sole trader where he does not have the benefit of limited liability. 2. There will be greater access to finance for expansion. E.g. Finance will be required to modernise the bus fleet and remain competitive in the changing market which includes deregulation of public transport. 3. The business will be able to cope with the problems of expansion and a new management structure will lead to greater efficiency. E.g. Patrick believes that a different ownership structure will be necessary if the business is to grow and develop in the future. (C) (ii) 15 Marks [8 (6 + 2) + 7 (5 + 2)] Two Economic Variables 1. Interest Rates 2. Taxation 1. Interest Rates An increase in interest rates would make borrowing more expensive. This could curtail growth and reduce profits. E.g. Expansion will have to be financed either by borrowing or from new shareholders. 2. Taxation An increase in VAT may make his business less competitive than competitors after deregulation occurs. E.g. Patrick is conscious of the impending deregulation of the public transport. This will lead to more competition. 18

23 Magazine Printers Ltd [Page 345 Global Business] SOLUTION/MARKING SCHEME (A) (i) An indigenous firm is one established in Ireland and owned by an Irish Entrepreneur. (3 marks) E.g. Magazine Printers Ltd is an indigenous firm established by Mr Hayden. (2 marks) (ii) 15 Marks 3 x 5 (3 + 2) 1. They are a major source of employment for the economy by providing jobs both for their founders and others who work for them. (3 marks) E.g. Magazine Printers Ltd employs 40 people mostly from the local area. (2 marks) 2. Indigenous firms are likely to support the local economy in which they operate through sponsorship and involvement in local issues and initiatives. (3 marks) E.g. Magazine Printers Ltd has actively supported local interests by sponsoring the local Boxing club. (2 marks) 3. They provide a support to other small businesses in the area by sourcing their materials locally from them as well as when their employees spend their wages in the local shops, entertainment venues, etc. (3 marks) E.g. The average weekly wage bill which the firm pays to its employees is e40,000. (2 marks) B) (i) 15 Marks i.e. 1 x 8 (6 + 2) + 1 x 7 (5 + 2) The following are the benefits to Magazine Printers Ltd of recruiting externally for the post of General Manager. 1. The best talent available can be recruited whereas with internal Deirdre is limited to only one person. E.g. Jim Carroll has worked for Magazine Printers Ltd for eight years. 2. An outsider may find it easier to introduce change to the organisation than an insider. E.g. Deirdre Hayden feels that changes are required to improve the running of the business. 19

24 (ii) 15 Marks i.e. 1 x 8 (5 + 3) + 1 x 7 (5 + 2) The following criteria should be used: 1. Leadership ability to lead the business into new markets to enable the business expand. E.g. This person will be instrumental in developing new markets and generate new ideas. 2. Experience has the applicant the relevant experience for the job of general manager. E.g. The new general manager will have to take over the day to day running of the business. (C) (i) 10 Marks i.e. 2 x 5 (3 + 2) 1. To enable the firm to have a profitable future. E.g. Deirdre is conscious of the need to develop new opportunities if the business is to grow in the future. 2. To replace existing services/products due to sales decline caused by a change in the requirements of customers. E.g. There is a sales decline over the last 10 years as advanced computer software has led to some firms (customers developing their own in-house publishing). (ii) Source of new product idea [20 Marks 2 x 10 (7 + 3)] 1. Suggestions from the firm s sales people who are in regular contact with customers. E.g. Deirdre has weekly meetings with the sales people. 2. Suggestions from employees involved in different parts of the business. E.g. Deirdre encourages other employees to suggest new product ideas