ABQ Answers 1. Introduction to People in Business · 1 Introduction to People in Business Chapter 1...

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Introduction to People in Business Chapter 1

ABQ AnswersSample answers are provided for every ABQ in the textbook. Commentary is provided concerning themarking scheme and the minimum number of points required. In some cases, the answers providedcontain more points than would be required in an exam. This is done in order to illustrate the rangeof possible points that students can provide.

1. Introduction to People in BusinessGold Medal SportsFrom a young age, Danielle Burke was always keen on tennis, basketball and other sports. Afterstudying business at university, she decided to set up her own business manufacturing sportsequipment. She financed the start-up using savings, a grant from her local county enterprise boardand money from a group of shareholders who agreed to invest in the business in return for a 40%share of the ownership.

Over the years, the business has grown and had become very profitable producer of a wide rangeof sports goods and equipment. It employs dozens of staff in the local community and pays tax onits profits to the government. However, for her staff, Danielle is a tough manager to work for. Pay atGold Medal Sports is poor and working hours are long. The business regularly has to recruit new staffto replace staff who leave for better work elsewhere.

Danielle is a tough negotiator and always looks for the best bargains from her suppliers. However,she has had problems with the quality of the raw materials coming from some of her suppliers. Theequipment in her factory is also now out of date and prone to breaking down. This is affecting thequality standards of the goods produced and customers are not happy. Gold Medal Sports is nowunder increasing pressure from rival sports goods manufacturers in China and the Far East who cansupply better quality goods at very competitive prices.

To respond to this threat, Gold Medal Sports needs modern, state-of-the-art production machinery.This will require a major investment of finance. Danielle has decided that for the next few years, allprofits will be retained in the business to pay for modernisation of the factory. This means that therewill be no dividends paid to the shareholders who invested in the business until the profitability ofthe business improves.

1. Describe how the different stakeholders can affect the future survival and success of GoldMedal Sports. Refer to the text in your answer. (20 marks)Comment: For 20 marks, students should make at least 4 brief points (one point per stakeholder) @ 5 markseach, or seven shorter points @ 3 marks each. Any key terms in the question should be explained. Possiblepoints that students could make include:

• Stakeholders are the different groups of people who are directly affected by how a business is run. Examples include entrepreneurs, customers, suppliers, employees, investors and the local community.

• Danielle Burke is a stakeholder as she is the entrepreneur (and manager and owner) behind the business. As the entrepreneur, she is responsible for getting the business successfully established. A business that is properly set up will have a better chance of future survival and success.

• As a manager, Danielle is responsible for the daily running and decision-making in the business. For example, she has to decide what to do about the equipment that is “out of date and prone to breaking down”. If she makes a good decision, then she will enhance the likelihood of future success.

• Gold Medal Sports is dependent on customers for its sales. Customers who are unhappy with declining quality standards will buy from competitors instead. This will undermine the future survival of the business. Satisfied customers are likely to return and generate repeat sales, which enhances the likelihood of success of the business.

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BUSINESS EXPRESS ABQ Answers

• Suppliers can affect the success of the business if they supply poor quality raw materials to Gold Medal Sports. Low prices from suppliers can enhance short term profitability. However, being a “tough negotiator” and always “looking for bargains” may damage Gold Medal’s quality standards, reputation and lead to a loss of sales.

• Employees affect the success of the business through their hard work and commitment to make the business a success. Gold Medal Sports poor pay and long working hours means that time and energy is wasted constantly recruiting new replacement staff. This undermines the success of the business.

2. Illustrate one co-operative relationship and one competitive relationship that could existbetween Gold Medal Sports and its stakeholders. Refer to the text in your answer. (30 marks)Comment: This question is looking for illustrations (or example) of a competitive and a co-operativerelationship that could exist. These could be hypothetical (made up) but still made relevant to the ABQ. For30 marks, students should make 6 points @ 5 marks each (maximum of 15 marks for co-operative and 15marks for competitive relationship). Key terms in the questions, such as competitive and co-operative businessrelationships, should be explained as part of your answer. Possible points a student can make to answer thisquestion include:

• Competitive business relationships views stakeholder relationship as win/lose for both sides and where each party therefore tries to take advantage of the other.

• A possible example of a competitive business relationship could be Gold Medal Sports (GMC) relationship with other manufacturers of sports equipment.

• It must compete with these other manufacturers to attract customers by offering a wide and attractive range of quality sports products and at competitive prices.

• Gold Medal Sports must constantly monitor what its rivals are doing to ensure that the business remains attractive to customers of sports equipment.

• For example, the business could monitor closely rivals designs and then try to out-do them by designing better alternatives. By monitoring competitors’ prices, GMC could run special offers such as 20% off, 2 for the price of 1.

• Co-operative business relationships view stakeholder relationships as a possible win/win for both sides. An example of a co-operative business relationship could be Gold Medal Sports relationship with its investors.

• Danielle sold a “40% share of the ownership” of the business to investors in order to raise finance to set up. In return for their investment, these shareholders will want the value of their investment to rise and / or the business to share out the profits with them.

• As part-owners of the business, Danielle should provide the shareholders with honest and complete financial information that will help to build trust.

• By maintaining an open, trustworthy and co-operative relationship with shareholders, Danielle is in a better position to raise future finance (e.g. to replace obsolete equipment) by selling additional shares in the business, if necessary.

Additional comment: Alternatively, students could have taken suppliers, customers, or employees to illustratewhat a co-operative approach could look like.

3. Evaluate the possible benefits to Danielle of adopting a more co-operative relationship withthe business stakeholders. (30 marks)Comment: Make 6 points @ 5 marks each. Students should remember to make their answer relevant to theABQ. Possible points a student can make to answer this question include:

• GMC’s relationship with its suppliers is quite competitive because “Danielle is a tough

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Introduction to People in Business Chapter 1

negotiator and always looks for the best bargains from her suppliers.” As a result of this competitive approach, she “has had problems with the quality of the raw materials coming from some of her suppliers.”

• Adopting a more co-operative relationship with her suppliers would mean being prepared to pay fair prices and agreeing fair conditions (e.g. reasonable credit terms, delivery arrangements).

• Benefits for GMS of such a more co-operative relationship would include suppliers being more willing and able to build reliable, long term business relationships. This would help protect the quality of supplies of raw materials and help protect the reputation of the business.

• GMC’s relationship with its employees appears to be more competitive than co-operative: “Danielle is a tough manager to work for.” Also, pay “is poor and working hours are long.” As a result, GMS “regularly has to recruit new staff to replace staff who leave for better work elsewhere.” This is disruptive and time consuming for the business.

• Adopting a more co-operative relationship would mean viewing employees as partners. They would be paid fair wages for their work compared to similar firms and industries. They would be provided with safe and healthy working conditions. They may be paid bonus payments or a share in the profits depending on the success of the business.

• Benefits for GMS of adopting a co-operative relationship with employees include encouraging staff to more motivated, loyal and more likely to stay with the business. The longer staff stay, the more skilled and expert they could become, and therefore valuable to the business. The disruption caused by staff leaving and having to recruit replacements would be reduced.

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2. Resolving Conflict in the Marketplace Gourmet FoodsKevin Ryan is an entrepreneur and founder of Gourmet Foods, a small but growing manufacturer ofhigh-quality ready meals. The business employs very flexible, customer-focused staff and has beenputting a big effort into building up a good reputation for its quality products.

Despite being slightly more expensive than competitors, Gourmet Foods business has beengrowing. This has mainly been by selling its products through small shops and delicatessens.

Recently the business had a sales breakthrough when a major supermarket chain, Foodland,confirmed by letter that it had decided to place an initial order for ⇔50,000 worth of microwavabledinners. Foodland also paid ⇔1000 deposit for the order. This order was important for GourmetFoods and Kevin hopes that it will lead to lots of repeat order and also open up opportunities todistribute the firm’s products through other major supermarket chains. Kevin and his staff orderedextra raw materials and got started on making the products for Foodland.

However, one month later Foodland contacted him and informed him that due to a change ofcompany policy, the supermarket no longer wanted to stock Gourmet Foods meals. The supermarkethad decided that it wanted to keep costs down by only stocking well-known, low-price internationalbrands. Foodland also asked that the ⇔1000 deposit they handed over with the original order bereturned to them.

Kevin was devastated by this development. The order for Foodland had already been producedand was currently being loaded by forklift onto the back of a truck for delivery to the Foodlanddistribution depot.

1. Identify the different stakeholders in Gourmet Foods. Refer to the case in your answer. (20marks)Comment: Students should make 5 points @ 4 marks each – or 4 longer points @ 5 marks each. Studentsshould remember to make their answer relevant to the ABQ. Any key terms in the question (e.g. stakeholder)should be explained. Possible points a student can make to answer this question include:

• Stakeholders are the different groups of people who are directly affected by how the Gourmet Foods (GF) business is run. Examples include entrepreneurs, customers, suppliers, employees, investors and the local community.

• Kevin Ryan – the entrepreneurial “founder of Gourmet Foods” is a stakeholder. He will benefit from the profits if the business is successful, and loses his investment of time and money if the business fails.

• Customers, like Foodland, are stakeholders. They benefit from being able to purchase the firm’s high quality goods for resale in their shops. They also benefit from dealing with the firm’s “customer-focussed staff”. Without GF, they would have less choice.

• Suppliers of raw materials to GF are stakeholders. They benefit from having GF as a customer for their products. Without GF, they would have to find alternative customers for their goods.

• GF’s employees are stakeholders. They depend on the success of the business for their jobs and incomes. If the business becomes more successful, their jobs become more secure. If the business struggles, their jobs may be lost.

2. In your opinion, do Gourmet Foods have a contract with Foodland? Refer to the text to supportyour answer. (30 marks)Comment: Students should make 6 points @ 5 marks each – or 5 longer points @ 6 marks each. Studentsshould remember to make their answer relevant to the ABQ. Any key terms in the question (e.g. contract)should be explained. Possible points a student can make to answer this question include:

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Resolving Conflict in the Martketplace Chapter 2

• A contract is a legally binding agreement that can be enforced in a court of law. To be legally binding, a contract between Gourmet Foods and Foodland must contain all of the following eight elements:

• Contracts must contain an offer. Foodland “confirmed by letter that it had decided to place an initial order for ⇔50,000 worth of microwavable dinners". This is evidence of an offer to contract.

• Contracts must contain an acceptance, - GF must accept the offer. The fact that GF ordered extra raw materials and started producing goods for Foodland is evidence of an offer.

• Contracts must involve some form of consideration. This is something that is exchanged as evidence of having agreed a contract. “Foodland paid €1000 deposit for the order” is clear evidence of consideration.

• Intention to contract. This means that both parties must have intended this to be a legally binding contract. As this is a business agreement involving an offer, acceptance and consideration, it must be assumed that there was a clear intention to contract.

• Consent to contract. Each side must freely enter into the contract of their own free will and without false information. There is no evidence from the ABQ of anyone being pressurised, any misrepresentation or mistake, therefore there was consent to contract.

• Capacity to contract. Most businesses can enter into legal contracts. As food businesses, it is highly unlikely that Foodland or Gourmet Foods could be acting ultra vires.

• Legality of form. All business contracts can be verbal or in writing. This therefore applies to the GF contract with Foodland.

• Legality of purpose – contracts must be for a legal purpose. Supplying goods to Foodland would be perfectly legal.

• In my opinion GF do have a legally enforceable contract. Foodland have broken a condition of the contract.

3. Explain the legal remedies that are available to Gourmet Foods if they take Foodland to courtfor breach of contract. (30 marks)Comment: There are three main legal remedies. For 30 marks, students should make 3 points @ 10 markseach. Students should remember to make their answer relevant to the ABQ. Possible points a student can maketo answer this question include:

GF have three possible legal remedies:• Firstly, GF and Foodland could simply agree to cancel (rescind) the contract. If GF do this, then

they will suffer a considerable financial loss from producing goods for a customer who has changed their mind. They should therefore try to negotiate compensation from Foodland.

• Secondly, if Foodland are unwilling to negotiate an acceptable solution, GF can sue for financial compensation for the expense incurred producing goods for the cancelled contract. Suing for compensation will involve GF hiring solicitors to take Foodland to court.

• Thirdly, instead of suing for compensation, GF can go to court to seek ‘specific performance’. This means getting the court to legally compel Foodland to keep their side of the original contract. For GF, this will mean the court ordering Foodland to take delivery of the goods for sale and paying GF the original agreed price.

Global ElectricsSamantha Doyle bought a new computer in Global Electrics as part of the shop’s January sale. It hadbeen marked down by 50% to a ‘Special Offer’ price of €800 and came with a one-year guarantee.At the time, Samantha had happily signed the sales agreement and guarantee without reading thesmall print carefully.

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When she got home Samantha began unpacking her new possession but when she removed thesale sticker she found the original price sticker that said €999. She became even more annoyed whenshe discovered that when the machine was turned on, it would not connect to the Internet. Thecomputer also began crashing every 30 minutes and was effectively unusable.

Exasperated, Samantha contacted the retailer and explained the problem. Because she had aguarantee, she believed that she would be able to get a replacement. However, Global Electrics toldher that it was the manufacturer's responsibility and that the guarantee states this. The manufacturerof the computer was a Japanese company based in Tokyo. According to the manager, the shop'spolicy was not to refund, replace or renew faulty goods. Instead he gave her a telephone numberand recommended that she call Tokyo.

1. Analyse Samantha’s legal rights as a consumer. (30 marks)Comment: 6 points @ 5 marks each. Students should remember to make their answer relevant to the ABQ.Possible points a student can make to answer this question include:

• According to the Sales of Goods and Supply of Services Act 1980 customers have a legal right to receive goods that are of merchantable quality, that is, of reasonable durability and quality.

• To be merchantable quality, Samantha has a right to a computer that should run smoothly, be able to connect to the Internet and not keep crashing.

• This law also says that Samantha has a right to have the complaint dealt with by the seller, Global Electrics, not the manufacturer, as long as she has kept her receipt as proof of purchase.

• According to the Consumer Protection Act 2007 consumers have a right to receive true and accurate information about goods and services from sellers.

• This means retailers cannot give false or misleading information about past, present or future prices of a product.

• Samantha therefore has a right not to have been misled about the original price (€800 is not 50% of €999).

2. Explain the legal responsibilities of the Global Electrics retailer in the above case. (20 marks)Comment: 4 points @ 5 marks each. Students should remember to make their answer relevant to the ABQ.Possible points a student can make to answer this question include:

• According to the Sale of Goods and Supply of Services Act 1980, the Global Electrics shop has a legal responsibility to ensure that all goods sold are of merchantable quality, that is, of reasonable durability and quality.

• The computer sold to Samantha Doyle should run smoothly, be able to connect to the Internet and not keep crashing. It is therefore not of merchantable quality.

• The Sale of Goods and Supply of Services Act 1980 also says that Global Electrics, as the seller of the goods, is legally responsible for dealing with customer complaints – not the manufacturer. This means that the shop must deal with the complaint and not try to pass responsibility on to the manufacturer in Japan.

• According to the Consumer Protection Act 2007, retailers also have a responsibility not to give false or misleading information about past, present or future prices of a product.

• Global Electrics has a legal responsibility not to mislead its customers about the original price of the computers it is selling.

3. Recommend a legislative solution that Samantha could pursue to get a refund. (30 marks) Comment: 6 points @ 5 marks each. Students should remember to make their answer relevant to the ABQ.Possible points a student can make to answer this question include:

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Resolving Conflict in the Martketplace Chapter 2

• A legislative solution for Samantha could be to take her complaint to the Small Claims Court. • This would allow her to get a resolution without having to incur the financial cost or time

involved in going to a solicitor. • Samantha should contact the Small Claims Court online, by post or by telephone and fill in a

simple form outlining her complaint. • The court registrar will invite both sides to present their side of the dispute before making a

recommendation for a solution. • The Small Claims Court does not have the power to force an agreement.• However, it is nevertheless very effective at persuading sellers to honour their legal

responsibilities and to respect consumers’ rights.

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3. Resolving Conflict in the WorkplaceCrumbs Biscuits LimitedCrumbs Biscuits Limited employs 150 staff in a very busy factory producing a wide range of chocolatebiscuits, fingers and wafers. The firm has traditionally had a good industrial relations record andstaff turnover has been low. However, recently a number of new managers have taken up jobs in thefirm and things are beginning to change.

For instance, Bill Walton, a long time factory operative working in the chocolate section, wasdismissed for turning up late for work one day. He was shocked as he received no warning and hadbeen delayed because he got a puncture on the way to work. He has contacted the union for adviceon what he should do.

Another employee, accountant Sandra Ryan, a wheelchair user, has been passed over by far lessexperienced junior staff for two recent promotions in the finance department. The successfulcandidates were both young males who played golf regularly with the new finance manager. Sandrais devastated and deeply disappointed by what has happened as she regards herself as a hard-workingemployee who has served the company well for many years.

The staff trade union has decided to request a 10% cost-of-living pay rise. Given the high profitsthat the firm has been making in recent years, many workers are prepared to consider takingindustrial action if a suitable increase is not approved by management. However, at the same time,the managers in the company are very concerned about the size of the wage bill. To keep costs undercontrol, they are considering introducing a pay freeze for all staff.

1. Identify the legislation that may apply to Bill Walton’s situation and how it could assist infinding a resolution. (30 marks)Comment: Make 6 points @ 5 marks each. Students should remember to make their answer relevant to theABQ. Possible points a student can make to answer this question include:

• This incident is covered by the Unfair Dismissals Acts 1977 to 2007. These laws prevent employees from being dismissed from their jobs for unfair reasons.

• The Unfair Dismissals Acts 1977 to 2007 apply to all employees who are employed in an organisation for more than one year, such as ‘long time factory operative’ Bill Walton.

• The Acts say that a dismissal is considered fair if the employee was incompetent, engaged in unacceptable conduct or the job had become redundant. Being late for work because of a puncture is not covered by any of these. Therefore, the grounds for Bill Walton’s dismissal appear to be unfair.

• The Acts also say that before being dismissed, an employee such as Bill has the right to know the reason, have a right of reply to those reasons, to be accompanied by a representative (such as a union rep) at any dismissal meeting and to have a fair hearing. It appears that Bill may not have been given a right of reply or invited to have a representative present.

• An employee, such as Bill, with an unfair dismissal complaint can take it to the Employment Appeals Tribunal. The tribunal will invite both sides in to present their arguments.

• The EAT will then make a binding recommendation to resolve the dispute. In this case, the tribunal will find in Bill’s favour and can order Crumbs Biscuits Limited to give him his job back or pay financial compensation or both.

2. Analyse the situation facing Sandra Ryan, referring to the text in your answer. Recommend apossible legislative solution to her issue. (30 marks)Comment: Make 6 points @ 5 marks each. Students should remember to make their answer relevant to theABQ. Wherever possible, students should refer to the ABQ in their answer. Possible points a student can maketo answer this question include:

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Resolving Conflict in the Workplace Chapter 3

• Despite being more qualified, it appears that Sandra Ryan has been discriminated against and not given promotion because of her disability.

• According to the Employment Equality Act 1998, it is illegal to discriminate against an employee on a range of grounds including disability.

• The other grounds include gender, marital status, family status, age, race, sexual orientation, religious belief or being a Traveller.

• Employees like Sandra Ryan who feel that they have been unfairly discriminated should raise the issue with their employer.

• It that does not generate a satisfactory result, a legislative solution can be found by contacting the Equality Authority. The Equality Authority is the state agency responsible for ensuring that organizations do not break equality laws.

• Sandra Ryan can make a complaint to the Equality Authority. If they think that she may have case, it will be referred to the Director of Equality Investigations who may appoint either an Equality Mediator to work with Sandra and Crumbs Biscuits to find a solution or an Equality Officer to arbitrate and identify a binding solution.

3. Describe the mechanisms that could be used by management and unions to find a resolutionto the potential conflict over wages. (20 marks)Comment: Make 4 points @ 5 marks each. Students should remember to make their answer relevant to theABQ. Wherever possible, students should refer to the ABQ in their answer. Possible points a student can maketo answer this question include:

• To find a resolution, management and trade unions in Crumbs Biscuits Limited should meet to discuss and negotiate a solution to the potential conflict over wages by using the company’s agreed grievance procedures.

• Grievance procedures are the rules agreed between employers and staff/unions when raising and seeking to resolve workplace issues. The grievance procedure should result in a form of local pay bargaining between management and union representatives.

• If local pay bargaining does not produce a result acceptable to both sides, then the issue could be referred to the Labour Relations Commission (LRC) for assistance.

• The LRC is the State agency responsible for assisting unions and management to resolve industrial disputes without having to resort to strikes and other forms of damaging industrial action.

• The LRC can provide a conciliation service where professional negotiators help management and unions come to an acceptable agreement.

• If the LRC conciliation service is unable to produce a solution acceptable to both sides, then the matter could be referred to the Labour Court. The Labour Court is ‘the court of last resort’ in industrial disputes. It provides an arbitration service, which means listening to both sides and then recommending a solution.

• If both management and unions in Crumbs Biscuits Limited agree in advance to accept the recommendations of the Labour Court, then it is known as binding arbitration.

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4. Entrepreneurs and EnterpriseRuby ByrneRuby Byrne always liked a challenge. As a youngster, she earned pocket money by cutting herneighbour’s grass and washing cars, and sometimes by selling unwanted items on trading websiteslike e-Bay.

After her Leaving Certificate, Ruby went to college and qualified as a computer programmer. Shehas worked for the past five years for a rapidly expanding software company in a growing sector ofthe economy. A hard working and determined individual, she recognises that she is probably themost talented and creative computer programmer in the firm, reasonably well paid and responsiblefor the design of some very innovative software that has proved a major success internationally forthe company.

Ruby recently organised a College reunion where she met some old friends who are now self-employed and earning considerably more money than she is. ‘You will never become rich workingfor someone else,’ said one of them. They strongly advised Ruby to consider setting up her ownsoftware business either on her own or in partnership with some of her colleagues at work. That way,they argued, she could derive the full financial benefits from her creativity.

Since the reunion, Ruby has been calmly and realistically giving the idea considerable thought.She has been involved in setting up a local mini-hockey league and also a local residents association.But she has never run a business before. Although she finds the idea tempting, especially thechallenge and idea of greater independence, she is concerned about a number of points:

• Technology is changing so fast that the technical skills she has today may be obsolete in ten years.

• She has no formal business training and very little cash to invest in a new venture.• She has financial responsibilities to her family, a mortgage and monthly bills.

1. Identify the enterprising characteristics displayed by Ruby. Refer to the text in your answer. (30marks).Comment: For 30 marks, make 6 points @ 5 marks each. Teachers should note that the syllabus no longerdistinguishes between innate and learned characteristics. Students should remember to make their answerrelevant to the ABQ. Wherever possible, students should refer to the ABQ in their answer. Possible points astudent can make to answer this question include:

Possible personal characteristics needed by Ruby to include• Confident / proactive, not put off by set backs or the risk of failure. Example: She “always liked

a challenge”• Determined and motivated to succeed. Example: She is a “hard working and determined

individual”• Innovative and creative thinker. Example: “she is probably the most talented and creative

computer programmer in the firm”• Realistic about levels of risk and their own strengths and weaknesses. Can carefully evaluate

and select before taking a risk. Example: When considering becoming an entrepreneur did so “calmly and realistically giving the idea considerable thought

• Decisive in taking decisions: Example: She was able to take decision by setting up small businesses to earn pocket money.

• Able to identify opportunities. Example: She “earned pocket money by cutting her neighbour’s grass and washing cars, and sometimes by selling unwanted items on trading websites like e-Bay.”

• Learned to set goals and plan. Example: She passed her Leaving Cert, got into college and qualified as a computer programmer.

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Entrepreneurs and Enterprise Chapter 4

• Effective time management. Example: Able to study effectively, work hard and also be actively involved in many community activities.

• Learned to get along with people. Example: Ruby “has been involved in setting up a local mini-hockey league and also a local residents association.” Example: “Ruby recently organised a College reunion.

2. Evaluate the risks and opportunities facing Ruby if she starts up on her own. (30 marks).Comment: Make 6 points @ 5 marks each – with a total of 15 marks for risks and 15 marks for opportunities.Students should remember to make their answer relevant to the ABQ. Possible points a student can make toanswer this question include:

Risks include:• Risk to Ruby of investing considerable personal time and effort in something that may not work• Risk to Ruby of investing own money that may be lost • Risk to Ruby of taking on too much stress and responsibility in running a business

Opportunities include:• Greater personal independence for Ruby from being own boss• Greater personal satisfaction for Ruby of doing work of own choosing and setting personal

challenges.• Increased income and financial independence for Ruby from setting up a profitable and

successful enterprise• Greater opportunity for Ruby to express personal creativity and to generate and act on new

ideas.

3. Discuss the importance of enterprise to the different parts of society. (20 marks).Comment: Make 4 points @ 5 marks each. Possible points a student can make to answer this question include:

• New enterprises create jobs and provide incomes and careers for people.• New enterprises pay taxes to the State on any profits made, collect VAT on sales, and collect

income tax from employees. These extra tax revenue can fund increased government spending on essential services

• New enterprises encourage creativity and the generation of new goods and services for the benefit of society

• New enterprises encourage the growth of an enterprising, ‘can do’ spirit that boosts local and national self-confidence.

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5. Introduction to ManagementParty Products LimitedEntrepreneur Robert Shiels set up a business making party decorations such as banners, balloons,hats, and novelty gifts. A hard worker, he admits that one of his best decisions as an entrepreneur wasto employ Karen Faye as full-time manager.

Karen is responsible for managing all aspects of the day-to-day management of the Party Productsfactory and its 25 staff. This leaves Robert free to concentrate on coming up with new toy ideas andincreasing sales, the parts of the business that she most enjoys.

As the factory manager, Karen plans the work of the factory, including production quantities andquality control. She has organised the staff into work teams and meets each team first thing in themorning for a short daily planning session. Karen keeps control by supervising the factory staff closelyand whenever any problems arise, she is on-hand to help sort them out.

To be effective at her job as manager, Karen has to be a good leader that the staff will respect andlisten to. Her attention to detail and focus on quality sets a good example for all the staff. Karen alsohas to be able to motivate staff to contribute their best to the business. As a manager she is dealingwith people all day. This means that she must also be a good communicator who is able to get alongwell with people and ensure that everyone understands what is going on and what work is required.When business is particularly busy, Karen is always mindful to delegate work where possible to otherstaff ensure that she does not get overloaded with work or stressed out.

Karen reports to Robert and has a weekly meeting with him every Monday to discuss the runningof the factory over the coming week. These meetings can cover important on-going issues such ascontrolling production costs, maintaining quality control as well as occasional issues such as theneed to invest in new machinery or to hire new staff.

As an entrepreneur, Robert is very satisfied with Karen's work as manager. Having Karen in thebusiness means that Robert does not get bogged down in the day-to-day running of the factory. Thisleaves him free to concentrate on developing new product ideas and growing the Party Productsbusiness.

1. Identify the management characteristics displayed by Karen Faye. Refer to the text in youranswer. (20 marks)Comment: Students should make 4 points @ 5 marks each. Possible points that a student can make to answerthis question include:

• Karen’s ability to plan is clear as she plans the work of the factory, including production quantities and quality control.

• Karen’s ability to organise is shown as she has organised the staff into work teams.• Karen’s communications skills are demonstrated by her meeting each production team first

thing in the morning for a short daily planning session. She is a good communicator who is dealing with people all day and is able to get along well with people and ensure that everyone understands what is going on and what work is required.

• Karen keeps control by supervising the factory staff closely and whenever any problems arise, she is on-hand to help sort it out.

• Karen is a good leader whom the staff will respect and listen to. • Karen is a motivator as she motivates staff to contribute their best to the business.

2. Contrast the distinct roles of Robert as an entrepreneur and Karen as a manager (30 marks)Comment: Make 3 points @10 marks each (or 6 smaller points @ 5 marks each). Contrast means identifythe differences between Robert as entrepreneur and Karen as manager. Students should remember to make theiranswer relevant to the ABQ. Wherever possible, students should refer to the ABQ in their answer. Possible

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Introduction to Management Chapter 5

points a student can make to answer this question include:

• As an entrepreneur, Robert must generate the big and important ideas for growing and developing the business. For entrepreneurs, this often involves bursts of initiative and creativity. In contrast, as a manager, Karen’s work is far more stable as she is responsible for the day-to-day decision-making and fixing smaller problems as they arise.

• As an entrepreneur, Robert may invest much of his personal time and money into establishing and growing the business. In contrast, as a manager, Karen is an employee who does not own or invest any money in the business.

• Entrepreneurs like Robert typically thrive on the excitement and satisfaction of starting something new. They dislike routine and get bored easily. In contrast, managers like Karen have to focus on the daily running of the business. When well planned and organised, this can make a manager’s work far more routine and predictable.

3. Discuss the difficulties that could arise if Robert tried to undertake both roles instead of hiringa manager. (30 marks)Comment: 6 points @ 5 marks each. Students should remember to make their answer relevant to the ABQ.Wherever possible, students should refer to the ABQ in their answer. Possible points a student can make toanswer this question include:

• Robert would get tied up/bogged down in the daily decision-making and running of the business

• He would have far less time for developing new ideas or initiatives for the business.• Distracted by the day-to-day management, Robert would be more likely to fail to identify new

opportunities or threats facing the business until it was too late.• He would have less time to communicate effectively with all the key stakeholders in the

business. • Combining the demands of entrepreneur and manager means Robert would find it more

difficult to manage his time. This would probably be more stressful for him and damage his health.

• As an entrepreneur, getting tied up in routine management issues could lead to the job becoming less satisfying for him.

• The future success of the business would be put in jeopardy as it can be very difficult for some people to combine effective entrepreneurship and effective management.

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6. Management Skills of Leadership and MotivationStar FMStar FM is an independent commercial radio station employing thirty staff, including ten DJs andpresenters. It has been broadcasting for the past five years and has built up a steady listenership. Thestation manager, William Morris, prides himself being a 'hands-on' type of manager, involved in allaspects of the station's work. He likes to share his opinions and, as managing director, expects othersto agree with him.

While the station's audience ratings are good and it is attracting lots of advertising, staff are nothappy. Over recent months William has been telling producers and DJs what music to play and notto play. He has informed the staff that the wearing of casual clothes at work is no longer acceptable,but gave no reason for this decision. There is now a growing sense among staff that William isinterfering unnecessarily in their work. Already one DJ has left for another station while another isrumoured to be thinking about following her.

William has become aware of the decline in the level of motivation among staff and has increasedstaff wages in response. However, this appears to have made little difference. The station’s owners arenow getting concerned about the way the station is being run.

1. Explain why money alone may not be a sufficient motivation for staff in Star FM. (30 marks)Comment: Make 6 points @ 5 marks each. Students should remember to make their answer relevant to theABQ. Wherever possible, students should refer to the ABQ in their answer. Possible points a student can maketo answer this question include:

• According to Maslow, people’s motivations can be organised in a pyramid from basic physical and safety needs at the bottom, up to social self-esteem and ultimately self-actualisation needs.

• Money (through pay, bonuses, commission and overtime payments) can be an effective motivator for Star FM’s staff who are primarily motivated by physical or security needs.

• Money can also appeal to a person's self-esteem needs since, besides increasing their income, money is seen by many people as a symbol of their success in business.

• However, money alone is not enough to provide a constant motivation for most people. Beyond a certain level, most people prefer other rewards, such as more holidays or free time.

• As 'higher' needs emerge and begin to influence motivations, money therefore becomes less of a motivating influence for people.

• Managers in a business such as Star FM should identify the level of need exercising the greatest influence on employees and take action to provide opportunities to satisfy those needs.

• For example, a DJ seeking meaningful, self-actualising work may be more motivated by the opportunity to express his or her own musical tastes and interests than by a pay rise.

2. Identify William’s leadership style. Recommend, giving reasons, an appropriate style ofleadership that you consider suitable for running the radio station. Refer to the text in youranswer. (20 marks)Comment: Make 4 points @ 5 marks each. Students should remember to make their answer relevant to theABQ. Wherever possible, students should refer to the ABQ in their answer. Possible points a student can maketo answer this question include:

• William Morris is displaying an autocratic style of leadership. He is ‘involved in all aspects of the station's work’ and does not seem to like sharing authority. He wants to impose his views on his staff and ‘expects others to agree with him’. Star FM staff feel he is ‘interfering unnecessarily in their work’.

• Authoritarian managers behave this way because they have little trust or confidence in the ability

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of their staff and are therefore unwilling to delegate power and decision-making responsibilities. • As a music radio station, Star FM is in the entertainment business. Such a business would work

best when staff are encouraged to e creative and rules and restrictions are kept to a minimum. This suggests that a more democratic or laissez-faire style of leadership would be more appropriate in Star FM.

• If William adopted a democratic style of leadership it would mean being willing to discuss issues with staff and to delegate power and responsibility.

• William would have to learn to trust his staff more and allow them to get on with their jobs without interfering in areas – such as dress codes for DJs – that are irrelevant to the effectiveness of a radio station and whose listeners cannot see the DJs.

• Where William has concerns with issues, he should discuss them with the staff and be prepared to listen and accept that views other than his own may be correct.

• Democratic styles of management are common in most successful businesses and would be appropriate for a radio station like Star FM. If William is unwilling to change his leadership style then the owners may consider his management style to be incompetent and damaging to the business. They could then consider dismissing him from his position as station manager.

3. Select a theory of motivation and show how William could use it to improve motivationamong Star FM’s staff. (30 marks)Comment: Make 6 points @ 5 marks each. Students could select either Maslow’s Hierarchy of Needs ofHerzberg’s Theory X / Theory Y. Students should remember to make their answer relevant to the ABQ.Wherever possible, students should refer to the ABQ in their answer. Possible points a student can make toanswer this question include:

• William Morris should first examine his staff for signs of their current need level according toMaslow’s hierarchy of needs. This is done by analysing their comments, attitudes, quantity andquality of work being done plus the employee's own personal circumstances such as home life,level of education, personality, etc.

• Using the information gathered, William should then identify the different levels on thehierarchy of needs that employees are attempting to satisfy.

• William should then try to create a working environment that provides Star FM’s employeeswith the opportunity to meet their unsatisfied needs. The employees are now in a positionwhere they are motivated to work to satisfy their dominant need.

• For staff whose physical needs seem most important, William should increase pay or providebonus or commission payments. He could also offer staff training and/or promotion to better-paid jobs in the station.

• For staff whose safety needs seem most important, William should ensure that staff feel safe andprotected at work. Possibly provide free medical check-ups, redistribute workloads to ensurethat no member of staff is overworked or stressed.

• For staff whose Social needs are most important, William should aim to create a friendlyenvironment and organise social get-togethers for the staff so that new employees will fit in asquickly as possible. He could also organise more flexible working hours with them that suit thehome needs of the workers.

• For staff whose Esteem needs seem to be their main motivator, William should look foropportunities to praise their work and give them a 'visible' reward such as a bigger desk or office,new company car or free tickets to big name concerts.

• For staff whose Self-actualisation needs seem to be their main motivator, William shoulddelegate greater decision-making authority and responsibility to them. He should let the DJswear what they like and plan their own music play lists as long as they attract sufficient listeners.

• He could also assist employees to work out career plans in the business, help them to get furthertraining or education that will allow them to satisfy their self-actualisation and creative needs.

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He could also consider allowing staff to take career breaks so that they can travel and / or workelsewhere and broaden their horizons.

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7. Management Skill of CommunicationKalamazoo ClothingLinda Delaney is the recently appointed Chairman of the Board of Directors of Kalamazoo Clothing.In recent months, sales have been falling even though the firm's products and prices are verycompetitive and a lot of money has been spent on advertising. Linda decided to find out why bycontacting OMD Ltd, one of Kalamazoo's former big customers.

"Kalamazoo’s sales staff need to learn some manners," said the manager of OMD. "Whenever wephone up your company, the people who answer the phone are often rude and impatient, the personwe want to speak to never seem to be in - and the people in the office never know where they are orwhen they will return. Even worse, your staff never phone us back, even if we have asked them to doso. That is simply no way to do business. Your company obviously has little respect for its customers,so why should we do business with Kalamazoo?

Linda was shocked by this information and decided to raise the matter at the next meeting of theboard of directors. However, this turned into a fiasco. Some directors did not receive the notice ofthe meeting in time and missed it. Those who did turn up found a meeting without any writtenagenda. The meeting was poorly chaired and Linda was accused of being disorganised and biased inletting some people do loads of talking while others could barely get a word in. For example, somedirectors talked at length about the effectiveness of the advertising campaign while other directorswho wanted to talk about the threatened strike by staff over rumours of redundancies felt ignored.After five hours, the meeting eventually ended but with no clear decisions. There were also nominutes being taken of the meeting, a fact that further annoyed some of the directors.

1. Identify evidence of poor communications in Kalamazoo and discuss the consequences thatthis can have for a business. Refer to the text in your answer. (30 marks)Comment: Make 6 points @ 5 marks each. Students should remember to make their answer relevant to theABQ. Wherever possible, students should refer to the ABQ in their answer. Possible points a student can maketo answer this question include:

• Poor listening and communication skills among Kalamazoo staff taking telephone calls. For example, a customer said "Whenever we phone up your company, the people who answer the phone are often rude and impatient, the person we want to speak to never seem to be in - and the people in the office never know where they are or when they will return.’ This is poor customer service and damages the reputation of the business.

• Inability to provide feedback to customers. For example, one customer said ‘staff never phone us back, even if we have asked them to do so.’ This is poor customer service and damages the reputation of the business.

• Damage to Kalamazoo’s reputation is confirmed by the customer comment that the company ‘obviously has little respect for its customers, so why should we do business with Kalamazoo?’ and explains why advertising campaigns have had little success.

• Poorly planned board meetings where some directors ‘did not receive the notice of the meeting in time’ and missed it. This is very sloppy and means all the talent and expertise on the board are not available to contribute to the meeting and the making of wise and effective decisions.

• Board meeting being run ‘without any written agenda’ mean directors do not have time to think and reflect in advance about the issues arising or to identify possible ideas or solution. This means that directors’ contributions to the meeting will be far less effective.

• The board of directors meeting was ‘poorly chaired and Linda was accused of being disorganised and biased in letting some people do loads of talking while others could barely get a word in.’ This means that not all the expertise of directors get heard or shared when trying to solve problems and make decisions.

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• Meetings are far too long: ‘After five hours, the meeting eventually ended but with no clear decisions’. The longer a meeting, the more tired and disinterested people become. Meetings need to be clearly focussed and as short as possible to be effective.

• It was said that there were also ‘no minutes being taken of the meeting’. Without minutes, there is no formal record of who attended, what was discussed or the decisions made. This will make it very hard to follow up on actions at the next meeting and seriously undermines the ability of the directors to control the company.

2. Describe how future meetings of the Kalamazoo board of directors should be organised andthe important duties of a chairperson. (20 marks) Comment: Make 4 points @ 5 marks each. Students should remember to make their answer relevant to theABQ. Wherever possible, students should refer to the ABQ in their answer. Possible points a student can maketo answer this question include:

• The Kalamazoo board must appoint a minutes secretary is responsible for notifying participants about the meeting and taking note of the decisions made during the meeting. Minutes are a written record of what was discussed and decided at a meeting. They include information on the date, location, names of attendees, apologies of non-attendants, purpose of the meeting, main views expressed at meeting, votes taken and decisions made.

• Before the meeting the minute’s secretary in consultation with the chairperson should send out notice calling people to the meeting, along with copies of the agenda.

• At the start of the meeting, the minute’s secretary reads out the minutes of the previous meeting. These minutes must be approved by the present meeting as being accurate and then signed by the chairperson before the meeting can proceed. The secretary also takes notes of the main points made at the present meeting and any decisions taken.

• When organising and running meetings of Kalamazoo’s Board of Directors the chairperson has to take responsibility for the correct running of a meeting. Linda needs to be fully aware that her duties as chairperson.

• Before the meeting, the Chairperson, Linda, must decide on the agenda. An agenda is a summary list of all the items to be dealt with at the meeting. Important issues should put near the top of the agenda and less important matters at the end as a precaution against the meeting running out of time.

• The Chairperson must ensure that the meeting was called in accordance with the rules and that everyone received notification. The Chairperson must also ensure a quorum is present. A quorum is the minimum number of people who must attend before an official meeting can begin.

• As chairperson, Linda must follow the agenda in the agreed order and anticipate possible problems on the agenda. Standing orders must be agreed. Standing orders are the agreed rules for running the meeting. The chairperson must ensure that they are being properly followed.

• As chairperson, Linda must allow everyone who wants to speak reasonable time to express their views. If there is a disagreement, care must be taken to ensure impartiality so that both sides have an equal amount of time to put their case.

• The Chairperson must keep order among the participants. This includes preventing interruptions and people speaking out of turn or dominating the meeting.

• In formal meetings, such as meetings of the Board of directors, the Chairperson may put motions to a vote. If a vote is tied, then the Chairperson can use their casting vote to break the deadlock.

• After the meeting, the minutes secretary arranges the next meeting in co-operation with the Chairperson. This includes writing up the minutes of the previous meeting and circulating them to those who attended. This should be done as soon as possible to ensure accuracy of recall.


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3. Draft a written agenda for a meeting of the Kalamazoo board of directors. (30 marks)Comment: Make 6 points @ 5 marks each. Students should simply provide a list of the agenda includingstandard items such as Apologies, Minutes of last meeting, AOB, as well as a brief selection of other items youconsider relevant to the business.

Agenda of Meeting of Kalamazoo Board of Directorsa) Apologiesb) Minutes of previous meeting of Board of Directorsc) Communication problemsd) Advertising and marketing review e) Financial update and latest resultsf) Human Resource issuesg) A.O.B. (Any Other Business)

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8. Management Activities of Planning, Organising & ControllingYamamoto Ireland LimitedYamamoto (Ireland) Limited is a subsidiary of a large Japanese multinational corporation with plantsin Japan, Europe and America. Attracted by the generous cash grants available from IDA Ireland andIreland’s low tax rate on business profits, it opened a branch in Cork where it currently employs 500employees. It pays over €20 million in wages annually and also spends millions more every year onsupplies and services from local businesses in the Munster region.

For the first seven years its operations in Ireland were very profitable and most of its output wasexported. However, in the past year market changes have led to a sharp drop in sales of its only product,chemical dyes, even though the market for most other chemical products remains strong. The Irishoperation is now barely profitable.

Yamamoto allows only one union, SIPTU, in the plant and all employees are members. Staff arehighly skilled and motivated. The plant has never experienced any industrial unrest. Employees areorganised into departments using a functional management structure.

Last year a meeting of senior managers was held in the Tokyo head office to evaluate the performanceof its various plants worldwide. The Cork plant fared badly compared with similar facilities in Polandand India. The parent company has announced that ‘the company has to eliminate its less efficientoperations or face substantial losses’. Each plant has been given the goal of preparing a strategic planthat will reduce costs and increase efficiency. The managers of the Irish plant must report back to headoffice in six months’ time, when decisions will be made regarding which plants will be kept open andwhich will be closed.

1. Conduct a SWOT analysis of Yamamoto (Ireland) Limited. Refer to the text in your answer. (30 marks)Comment: Make 4 points (one per each part of the SWOT) @ 5 marks each. Students should remember tomake their answer relevant to the ABQ. Wherever possible, students should refer to the ABQ in their answer.Possible points a student can make to answer this question include:

Strengths• Yamamoto (Ireland) Ltd is based in a country with low corporation tax on company profits• Part of a large, well know multinational company• Has a single union representing staff (SIPTU). This simplifies industrial relations and staff

communications. • Staff are highly skilled • Staff are motivated• Factory has never had any industrial unrest. Weaknesses• Currently produces only one product, chemical dyes• Irish factory is “barely profitable”.Opportunities • Market for most chemical products remains strongThreats• “Sharp drop in sales”• Irish factory less efficient than similar facilities in Poland and India. • Parent company wants to eliminate “less efficient operations”.

2. Recommend, with reasons, a suitable method of communicating the above information to staffin the plant. (20 marks)Comment: Make 4 points @ 5 marks each. Students should remember to make their answer relevant to the ABQ.Wherever possible, students should refer to the ABQ in their answer. Possible points a student can make to answerthis question include:

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Management Activities of Planning, Organising and Controlling Chapter 8

• This is important information for all Yamamoto staff as their jobs and incomes are possibly at stake. It is also important that staff correctly hear and understand the information.

• To be effective, this communications should be accurate, brief, clear, suitable for the content and allow for feedback from the receivers.

• In this instance, telephone calls would be very time consuming and not suitable for the content. Emails, text messages or posters on factory notice boards would be inappropriate, as would hearing about it first through a press release issued to the media.

• A suitable method would be for the senior Yamamoto management to issue a letter sent to all staff setting out clearly what the issues are facing the Cork plant. A written letter also allows words to be carefully chosen to avoid misunderstandings arising.

• This letter could also be accompanied or followed by a meeting of the senior management with all staff to allow for staff feedback. Such a meeting with all the staff would also allow the senior managers to answer any further questions that staff may have and for everyone to hear the information at the same time.

3. Draft a short report for Yamamoto management outlining the role that each of the managementactivities can play in rescuing the Irish plant from closure. (30 marks)Comment: Make 6 points @ 5 marks each. Students should use the main headings in a report to structure theiranswer. Given that only 30 marks are available for this question, points made in the report should be short.Remember to make their answer relevant to the ABQ. A possible report structure a student can use to answer thisquestion is:

Report on rescuing the Yamamoto PlantPresented to: The Board of DirectorsYamamoto CorporationTokyoJapanPrepared by: Irish Management Team

Terms of referenceTo outline the role that each of the management activities can play in rescuing the Irish plant fromclosure.

Main body of report1. Careful planning can identify the strengths, weaknesses, opportunities and threats faced by the

Cork plant. The Irish managers have identified important energy saving opportunities for the plant that can result in reduced costs and improved profitability.

2. An effective team-based, matrix organisation system is already in place in the plant. 3. Management control has been improved through the adoption of a new quality control system at

very little cost.

Conclusion and recommendations 1. The Cork plant can again become a highly profitable and effective plant for Yamamoto if new

opportunities are developed. 2. It is recommended that the plant is kept open for a further 12 months while the Irish managers

prove they can make significant savings on their energy costs.

Bibliography"Breakthroughs in Energy Saving” – A Study by NUI Galway.

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9. Human Resource Management HRMTalamh EnergyLinda Sweeney is the young and newly appointed human resource manager at Talamh Energy, aproducer of solar and wind energy products based in Co. Mayo. The firm has been steadily expandingover recent years and currently employs a total of 170 skilled staff. Over 75% of the staff work on theassembly line. The remainder are office-based, mainly managers, sales and administrative staff.Talamh has a policy of investing in continuous staff training and development, both on and off thejob.

Talamh has recently started selling solar and wind energy products over the Internet and sales havesky-rocketed as a result. To satisfy demand, an extra 30 staff will need to be recruited quickly for arange of customer service and manufacturing jobs. These posts will need to be advertised and filledquickly.

Linda is reviewing the financial and non-financial ways that the firm can attract and retain skilledstaff. Up to now, all staff were paid on a flat-rate basis except for the sales staff who were also paidcommission. However, Linda is now keen to try to improve productivity in the business and wantsto introduce piecework payments and performance appraisal for all the staff working on the assemblyline. She feels that these changes will ultimately benefit staff motivation and increase productivity.

However, despite Linda’s friendly manner, there is considerable unease and suspicion amongfactory staff about the proposal and the fact that it will only apply to staff on the assembly line andnot other employees.

1. Describe the different methods of payment that could be used to pay staff working on theTalamh assembly line. Recommend, with reasons, the method you consider most appropriate.(20 marks)Comment: Make 4 points @ 5 marks each. Students should remember to make their answer relevant to theABQ. Wherever possible, students should refer to the ABQ in their answer. Possible points a student can maketo answer this question include:

• Flat rate pay where Talamh Energy assembly line workers receive an agreed set rate of pay per week/month based on a standard number of hours worked. For example, €800 per week. This makes their pay predictable and easy to calculate. However, extra effort is not rewarded with extra pay. This means that there is no incentive for workers to work harder or longer.

• Time rate pay where Talamh Energy assembly line workers are paid a set amount for each hour they work. Overtime work is usually paid at a higher rate. Time rates are easy to calculate, however there is no reward for improved efficiency and Talamh staff may be tempted to work slower so that they will receive payment for more hours.

• Piece rate pay is where Talamh Energy assembly workers are paid for each item produced that meets the desired quality standard. For example, €200 for each item produced. Piece rate pay encourages maximum effort from employees.

• Flat, time or piece rates of pay to Talamh Energy staff can be topped up by bonus and commission payments. Bonus payments give employees a share of the profits resulting from their increased effort or efficiency. Commission is an extra payment based on the percentage of value of sales achieved.

• Benefits-in-kind are non-cash payments to staff. They include benefits such as free or subsidised meals, free staff health insurance or reduced prices for company products/services.

• As a manufacturer of renewable energy products, I recommend a piece-rate payment system as being the most suitable for Talamh. However, effective management control will be needed to ensure that the correct quality and health and safety standards are being met.

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2. Draft a short memo for Linda briefly outlining the role of a performance appraisal system andhow it could help Talamh. (30 marks)Comment: Students should lay out this answer in the form of a short business memo. 15 marks are allocatedfor the correct layout. A further 15 marks are allocated for the brief outline of the role of performance appraisaland how it could help Talamh Energy.

Memo

To: Linda SweeneyFrom: A. StudentSubject: Role and benefits of a performance appraisal systemDate: 2nd February

Performance appraisal is the process of setting performance standards for each employee. Theirperformance is then assessed regularly over time.

It presents a number of benefits for Talamh Energy. It can identify the training needs of employees.It can identify employees who are suitable for promotion. It can help in deciding where pay rises andbonuses may be appropriate. Finally, it can improve communications between managers andemployees.

Signed: A. StudentTitle Business Advisor

3. Evaluate the different types of non-financial reward that Talamh could use to attract and retainskilled staff. (30 marks)Comment: Make 6 points @ 5 marks each. Students should remember to make their answer relevant to theABQ. Wherever possible, students should refer to the ABQ in their answer. Possible points a student can maketo answer this question include:

• Talamh Energy can attract and retain skilled staff by providing them with high job satisfaction. Job satisfaction is the degree to which employees feel positive about their job, enjoy doing it and want to continue working with the firm. Job satisfaction is important to Talamh’s workers because without it they can suffer from stress and a decline in morale and motivation, absenteeism, a rise in labour turnover and poor industrial relations.

• Talamh can increase job satisfaction by offering shorter working hours, flexitime or longer holidays. Flexi-time means allowing employees to choose their own start and finish time as long as a minimum number of hours are worked. Flexitime can allow Talamh workers to have a greater sense of control over and satisfaction in their work life. This makes it easier to recruit and keep key skilled workers, particularly those with other commitments, such as parents of young children.

• Talamh can try to make work in the company as non-stressful as possible. It is normal for most jobs to involve some degree of stress from time to time. However a continuously highly stressful job is dangerous. This can be caused by many factors, including overwork, low pay, bullying or harassment, low job satisfaction or job insecurity.

• Talamh can create pleasant physical work environment that is spacious and clean. The presence of plants and access to natural light also contribute to job satisfaction.

• Talamh must ensure that workplace health and safety laws are obeyed. The firm may have a nurse or doctor as part of the HR team to deal with work-related medical problems. Talamh’s HR manager should work with the firm’s safety officer to ensure compliance with health and

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safety laws and that the workplace is as safe as reasonably possible for staff.• Talamh can create a pleasant social environment that encourages friendships and the growth of

a team spirit. Open-plan work areas, shared canteen areas and by organising inter-departmental sports, social activities, etc. can assist this.

• Talamh should ensure that there no discrimination, bullying or harassment of staff. All workers are entitled to be treated equally in employment matters. Employees should be protected from harassment such as unwelcome comments, looks, jokes, suggestions or physical contact that causes stress or intimidation for staff. Bullying and harassment in the workplace are illegal.

• Talamh could allow employee job sharing. This allows two people share one job. It can be operated on a week on/week off basis or with each worker working 2.5 days per week. They share pay and benefits in proportion to the hours worked. Job-sharing employees benefit from more free time to spend with their families and pursue other interests. Job sharing can benefit a firm by increasing worker motivation and by giving each job the attention of two minds; however, it does cut each participating employee's income in half and may cause management and organisational problems.

• Talamh could introduce job rotation where staff regularly move around from one job to another. This helps to reduce boredom and increase motivation. It also helps to increase their range of skills and willingness to change and take on new roles and responsibilities.

• Talamh could introduce job enlargement by increasing the number of different tasks involved in an employee’s job. This is intended to overcome boredom among workers who may be under-worked or have repetitive jobs.

• Talamh could introduce job enrichment by providing employees with work that requires greater responsibility, control and decision-making. It is intended to encourage staff to develop and use a wider range of abilities and skills.

• Talamh could introduce employee empowerment. This is an advanced form of job enrichment and means providing staff with a specific goal, deadline and resources but the freedom to decide how to achieve the goal. It allows a strong degree of self-regulation and satisfies the need of many staff for greater recognition, challenge and responsibility.

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10. Managing ChangeVenus ChocolatesAlma Hennessy is the chief executive officer (CEO) of Venus Chocolates, a mass-productionconfectionary company producing chocolate bars and snacks. Despite paying its staff well, thecompany has a morale and motivation problem that seems to be getting worse. Staff frustration atroutine and repetitive work means that the company has a high level of absenteeism and staffturnover. As a result, product quality has started to decline and customer complaints are on the rise.The company is now beginning to lose sales in the very competitive confectionary market.

Alma is described by her staff as having an autocratic and controlling management style. She likesto keep tight control over all staff to ensure that they are working.

Many of the workers have joined a union and their shop steward has contacted Alma using thecompany grievance procedure to say that staff morale is getting very low.

Venus has a functional organisational structure. Given the current problems, Alma is thinkingabout changing to a matrix/team-based structure. However, she is worried about how to introducethis kind of change to the staff. She also wants to ensure that quality standards in the company areimproved and that the company adopts more modern technologies that are being used by manyrival firms in the chocolate industry.

1. Identify the changes facing Venus Chocolates. Refer to the text in your answer. (20 marks)Comment: Make 4 points @ 5 marks each. Students should remember to make their answer relevant to theABQ. Wherever possible, students should refer to the ABQ in their answer. Possible points a student can maketo answer this question include:

• Meeting the needs of Venus staff means that Alma’s management style towards her employees must change. The current “autocratic and controlling” management style used by Alma is clearly not effective. Even though staff are well paid, the company “has a morale and motivation problem that seems to be getting worse”. Alma must change her approach to staff motivation.

• Venus staff are also frustrated with ”routine and repetitive work”. This is probably contributing to the high rates of absenteeism and staff turnover in the business. This suggests that the level of staff empowerment that exists in Venus must change.

• Quality standards have started to decline. Customer complaints are rising. This is happening in a very competitive confectionary market. If Venus does not change its approach to quality management, then the firm will lose sales and suffer damage to its reputation.

• If Alma decides to go ahead, Venus is also facing a possible change from a functional to a matrix/teamwork based organisational structure. This will require introducing greater levels of teamwork in the organisation.

2. Explain three strategies that Alma could introduce into Venue Chocolates to help the businessadapt to change. (30 marks)Comment: For 30 marks, make 6 points @ 5 marks each. Change management is a very broad area and thereis a very wide range of points that students can make. Five strategies are presented with a selection of possiblepoints for each one. However, to avoid wasting time students should only present three strategies in an examanswer, and remember to make their answer relevant to the ABQ. Possible points a student can make toanswer this question include:

Strategy 1: Alma should communicate the need for change• Before introducing any changes, Alma will need to prepare staff for change. This can be done

by providing open, honest communications about the changes required and the reasons why. This must include benefits of the changes and the consequences of failing to adapt to changes.

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• Alma should allow staff to provide feedback on proposals for changes. They often have good ideas and are also more likely to co-operate with changes on which they have been consulted.

• As CEO Alma should be prepared to negotiate deals that provide fair rewards to the employees for any sacrifices that they may have to make to accommodate change - for example, offering longer summer holidays in exchange for taking shorter lunch breaks.

• Alma should invest in on-going training for Venue staff. This is essential if employees are to have the skills to do jobs that have been changed.

• As CEO, Alma should provide leadership by example. Where possible, she and her managers need to be seen by staff as willing to adopt the changes themselves.

Strategy 2: Alma could introduce a ‘facilitator’ management style• Successful change management in Venus will require that Alma become more willing to trust

her staff and allow them greater responsibility and a say in business decision-making. • This means dropping her traditional ‘controller’ attitude and becoming a more ‘facilitator’

manager. ‘Facilitator’ managers have a ‘Theory Y’ attitude and a more democratic style. Venue staff are more likely to co-operate with change with managers who have a facilitator approach.

Strategy 3: Alma could introduce employee empowerment• Introduce employee empowerment into Venus means providing staff with the power to make

their own decisions about what jobs to do and how they should do it as long as it improves the performance of the business. By providing a large degree of self-regulation, empowerment can allow Venus staff to take much greater control of their jobs and improves their ability to cope with change.

Strategy 4: Alma could promote greater teamwork• Team-based (Matrix) structures are a type of organisational structure where staff are brought

together into teams to achieve the clearly stated team goals. Each team is responsible for achieving a clearly stated team goal, such as producing a particular model of car.

• Quality of decision-making in Venus could improve as matrix structures increases the level of staff co-operation and consultation. Each team will contain personnel with the different skills needed to achieve the team’s aims.

• Creativity and quality of work can improve in Venus as staff have a greater say in decision-making.

• Speed of decision-making can increase. With a matrix structure it is no longer necessary for Venus staff to go up through the chain of command to the top of the hierarchy for approval before making decisions.

• Motivation and employee job satisfaction in Venus could rise. Symptoms of employee unhappiness such as absenteeism, sabotage, etc. can be significantly reduced, both of which raise productivity.

• Venus’s organisational culture can be enhanced as staff from different areas work together. This helps to reduce internal barriers and makes the work more meaningful.

Strategy 5: Alma could promote a greater commitment to quality among staff. • Venus could recruit and train conscientious, quality-focused employees. Careless, sloppy workers

should be demoted or let go. Any redundancies made need to be handles carefully to ensure that they do not breach the Unfair Dismissals Act.

• Venus managers could adopt a more facilitator management style that motivates employees to contribute their best to the business. This means replacing Alma’s autocratic management style’ towards staff with a positive ‘Theory Y’ approach which encourages more flexible, adaptable and conscientious staff.

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• Venus could empower employees to constantly look for ways to improve customer satisfaction with the business. Pay bonuses and prizes for work of a consistently high quality to motivate staff.

• Venus could facilitate teamwork among employees. Teams should have quality and customer satisfaction as the main goal. This can be done by moving Venus away from a functional or product structure to a matrix / team based structure as Alma is considering.

• Alma could set up staff quality circles. Quality circles are discussion groups made up of employees who meet regularly to discuss and resolve quality issues. A wide range of relevant staff attend these meetings, including designers, production staff and customer representatives.

• Venus could adopt stringent quality control for all aspects of purchasing, production and delivery. Quality control means checking to ensure that the standard of goods and services produced by a business are to the desired quality.

• Venus could have a quality assurance system that can guarantee customers that a firm’s products are of the very highest possible quality standard. Quality assurance is the aim of quality control. If Venus reaches sufficiently high quality standards it can qualify for awards such as the ISO or the Q Mark.

3. Describe how the use of four different types of new technologies could assist the business. (30marks) Comment: For 30 marks, make 6 points @ 5 marks each. A question like this requires students to make someuse of their knowledge of business current affairs as technology is constantly changing and impacting onbusiness. Examples could include Skype, smart phones, EDI, internet, etc. Whatever technologies are used,students should make their answer relevant to the ABQ. Possible points a student can make to answer thisquestion include:

Internet • Venus can conduct market research using the Internet. Competitor websites can be monitored

and consumer trends can be monitored generally. Online discussion groups and social media can be useful for monitoring consumer trends. Information can be downloaded and printed out to assist research.

• Businesses can use websites to advertise and sell their products to a global audience at a very low cost, rather than using expensive shops and showrooms. Advertising and marketing costs are reduced by using websites which are cheaper to set up than opening expensive premises.

EDI• Venus could use EDI to reduce stock storage. Electronic Data Interchange (EDI) is an automated

stock ordering system that allows orders to be placed automatically from a computer in one business to a computer in another business using the Internet.

• An EDI system can allow goods to be ordered by Venus on time and with a minimum of paperwork or human involvement. This can significantly reduce business costs.

Computerised Manufacturing• Venus could automate its production process. Computer Aided Manufacturing (CAM) would

involve using computers to automate part of the work on a Venus assembly line to significantly reduce labour costs and improve quality control. Alternatively, Computer Integrated Manufacturing (CIM) uses ICT (such as robotics) to control the entire production process, from design and stock control to production and quality control. CIM could dramatically reduce Venus’s labour costs. However, it needs careful management control to avoid disruptions to the manufacturing process from computer errors.

• Computerisation and automation can significantly reduce the amount of staff and time needed to design and build products. This has pushed down production costs and increased efficiency for most businesses.

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Smart phones and tablet computers • Smart phones are essentially small portable computers with internet and telephone capabilities.

Tablet computers are not as small but are more powerful. Because they are highly portable. They can allow business people like Alma to work from almost any location.

• E-working means work location is becoming less important for many employees. E-working means people working from home but linked to an office using ICT such as computers, Internet and telephones. For Venus communications and transport costs are reduced through the use of email, text messaging and videoconferencing. For Venus profitability, it reduces office administration costs such as rent, light and heat for the business. By using computer networks, staff in different locations can reduce costs by sharing software and hardware (e.g. printers).

Solar and wind energy technology• Energy costs are a big concern for all businesses. By investing in renewable energy supplies,

Venus access free energy from the sun and wind. This can reduce business costs in the long term. • However, installing renewable energy technologies can require considerable installation

expenses. It may be many years before the initial investment in wind and solar technology pays off for Venus.

Spreadsheet software • Venus management decision-making can be speeded up by using technologies such as

spreadsheets (for financial calculations) to analyse huge amounts of data. • Speed and accuracy of financial accounts is greatly enhanced. Financial accounts can be quickly

and accurately prepared, saved, updated and printed out using spreadsheet software. If the accounts system is linked to the purchasing and payroll systems, then very accurate up-to-date financial data on the business can be maintained.

Managing Business & Household Insurance & Tax Chapter 11

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11. Managing Business & Household Insurance & TaxTaste BudzTaste Budz is a popular take-away and sit-down fast-food restaurant serving fish and chips, kebabsand burgers. Located in Cork on the banks of the River Lee, the spread of rival large fast-food chainoutlets has increased the competitive pressure on the business. However, being located next door toa petrol filling station on a very busy road seems to attract a lot of extra customers to the take-away.

Nevertheless, Sam Keogh, the owner, is thinking of entering the home delivery market, using histwo sons as motorbike delivery couriers. He knows he needs to keep costs down to protect his modestprofit margins. To save money he does not have any smoke alarms or sprinkler system installed. Hecurrently employs five part-time staff for whom he must pay employer's PRSI.

Sam pays income tax on his earnings from the restaurant under the self-assessment system. Healso adds VAT of 13.5% to all his sales, which he passes on to the Revenue Commissioners.

Sam has just received a renewal notice from his insurance company. His premises and contents arevalued at €500,000 but to help control his expenses Sam is considering insuring his premises for just€300,000 to reduce his premium and business costs.

1. Identify the risks and types of insurance policies that are relevant to Taste Budz. (20 marks)Comment: Make 4 points @ 5 marks each. Students should remember to make their answer relevant to theABQ. Wherever possible, students should refer to the ABQ in their answer. Possible points a student can maketo answer this question include:

• Property insurance for Taste Budz premises and contents against risks such as fire, explosion, storm, flood, burst pipes, civil commotion, malicious damage, subsidence, sprinkler leakage and theft. Having no smoke alarms or sprinkler system will increase the business’s insurance premiums. Also, being located beside a filling station increases the risk to the business property.

• Motor insurance will be needed for the motor bikes if Taste Budz introduces a delivery service for customers.

• Taste Budz cash takings should be insured while on the premises during working hours and in transit to and from banks.

• PRSI (Pay Related Social Insurance) on Taste Budz employees. This is a compulsory insurance payment by employees and employers to the State. It is calculated as a percentage of gross income and deducted from employees’ wages. The money raised from this goes towards paying for unemployment payments, pensions, maternity benefits, etc. PRSI has two parts: one part paid by the employee and another, larger share, paid by their employer.

• Permanent health insurance for Taste Budz employees can provide sick pay for workers unable to work due to illness. This is paid after the first 13 weeks of an illness.

• Fidelity guarantee insurance for Taste Budz provides business cover against dishonesty or fraud by an employee against the firm. This is important for employees who are put in positions of trust, such as those with access to bank accounts, safes or other valuable information.

• Public liability insurance will cover Taste Budz against claims if a member of the public is injured in an accident that is considered to be the fault of the business. This is very important for all shops and restaurants.

• Employer’s liability insurance can protect Taste Budz against claims arising from accidents, injuries and illnesses suffered by employees as a result of their work. The premium varies depending on the type of work done and the risks involved.

• Consequential loss insurance can provide Taste Budz with financial compensation for loss of income in the event of a major risk occurring. It will reimburse Sam Keogh for loss of profits and for incurring expenses such as having to continue to pay staff wages and the cost of temporary accommodation.

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2. Evaluate the implications for Sam if he goes ahead and reduces the insurance on hispremises to €300,000. (30 marks)Comment: Make 6 points @ 5 marks each. Students should remember to make their answer relevant to theABQ. Wherever possible, students should refer to the ABQ in their answer. Possible points a student can maketo answer this question include:

• Premises are valued at €500,000. If Sam Keogh insures his premises for just €300,000 then he is under insured.

• According to the Average Clause Rule, in the event of a claim, Sam would only be entitled to compensation for 3/5 of the value done.

• For example, if a chip pan fire resulted in €100,000 of damage to the premises, the insurance company would only pay 3/5 of the compensation, that is, €60,000. This would leave the business with a very large bill of €40,000 still to be paid on repairs.

• Unless Sam Keogh has very large savings with which to pay for such repairs himself without the benefit of insurance, he is unlikely to be able to meet such expensive costs.

• Because of the Average Clause Rule, it would be very unwise for Sam Keogh to insure his premises for significantly less than its full value.

3. Analyse the impact that different taxes can have on Taste Budz. (30 marks)Comment: Make 6 points @ 5 marks each. Students should remember to make their answer relevant to theABQ. Wherever possible, students should refer to the ABQ in their answer. Possible points a student can maketo answer this question include:

• Taxes reduce the size of Taste Budz profits and, in turn, the amount which can be ploughed back into the business or paid out in dividends - for example, paying Corporation Tax, Employer's share of PRSI, Capital Gains Tax, etc.

• Businesses such as Taste Budz are not paid anything for acting as unpaid tax collectors for the State. The cost to a business of collecting taxes (such as PAYE from employees) can be considerable in terms of time, paperwork, labour costs and the other administration costs involved.

• Taxes such as VAT will alter Taste Budz marketing mix by increasing the selling price of goods to customers.

• The cost of Taste Budz imported ingredients and raw materials (e.g. Tomato sauce) can be pushed up by customs duties.

• High personal taxation levied on Taste Budz staff can reduce their financial motivation to work and seek promotion. High levels of income tax can also make Taste Budz employees press for higher wages to compensate. This would increase labour costs and may cause industrial relations problems.

• The tax authorities have very strict policies regarding making payments on time. Firms like Taste Budz cannot delay payments. This means that the timing of tax payments to the Revenue Commissioners can seriously affect a firm's cash flow situation.

• Taste Budz must accurately anticipate the size and timing of payments and ensure it has enough cash in reserve to meet its working capital needs. Some tax payments, such as VAT collected from the sale of goods and Employer's PRSI, must be paid whether Taste Budz is making profits or not.

Managing Business & Household Finance Chapter 12

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12. Managing Business & Household FinanceElizabeth Fitzgerald, SolicitorElizabeth Fitzgerald is employed by a large firm of solicitors and is required to travel quite a lotgetting to and from work. ‘Running a car can be expensive and I'd like to buy a more fuel-efficientmodel than I have at the moment,’ says Elizabeth. She has seen a suitable second-hand car for€14,000 with very low mileage which she reckons is a good deal ‘as long as I can work out how Iwill pay for it!’

Elizabeth is also planning to open her own solicitors’ practice next year. She has produced acashflow budget for the planned business and is confident that after just six months her monthlyincome will begin to exceed her expenditure.

The start-up expenses that Elizabeth has identified include the cost of buying a suitable premises(approximately €300,000), hiring a secretary (wages will be approximately €2,000 per month), andthe purchase of office furniture and computer equipment (approximately €10,000). She expects thatmost of her sales will be on credit and that it will take up to three months to convert her debtors intocash. The business will also need monthly supplies of stationery, while telephone and electricitybills will arrive every two months.

1. Evaluate each of the following as a suitable source of personal finance for Elizabeth’s newcar: (a) overdraft, (b) savings, (c) personal loan, (d) mortgage. (40 marks)Comment: Make 8 points @ 5 marks each – or 4 extended points @ 10 marks each. Students shouldremember to make their answer relevant to the ABQ. Possible points a student can make to answer thisquestion include:

• Elizabeth needs €14,000 in personal finance to pay for her new car. This requires a medium term source of finance that can be repaid over a number of years.

• (i) Overdrafts are short-term bank loans that can give Elizabeth permission to write cheques for sums greater than she actually has in her current account up to a pre-set limit. This allows Elizabeth to borrow and repay in a flexible manner.

• However, overdrafts must be arranged in advance with the bank and a high rate of interest is charged daily on all overdrawn amounts. Overdrafts are short term (last less than a year) and would not be suitable for Elizabeth to finance her car.

• (ii) Personal loans are loans for private individuals for their own personal use, such as to purchase a car or pay for home improvements. The rate of interest charged to Elizabeth will be lower than for overdrafts. Loans are available from banks, building societies and credit unions.

• The size of the loan that is available to a potential borrower depends on the applicant’s occupation, annual income, purpose of the loan, size of loan, duration of the loan, details of any other loans or financial commitments and overall ability to repay the loan. Personal loans are a medium term source of finance as they are repaid over a number of years. This would be a suitable source of finance for Elizabeth’s new car.

• (iii) Savings are a major source of finance for most households and individuals like Elizabeth. Savings on a regular basis over a long period of time can result in the accumulation of large amount of finance that can be used for major purposes. Savings are most commonly done through savings accounts with banks, building societies, An Post or credit unions.

• If Elizabeth has savings, this will help to reduce the amount of finance she needs for her new car but still leaves her short. However, Elizabeth should also consider not using up all her savings to buy the car. She should retain some of her savings for contingencies and emergencies (e.g. repairs to car after crash).

• (iv) Mortgages are loans used to finance the purchase of a house or other property. They are available from banks and building societies.

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• Mortgages are the main long-term loans taken out by individuals and households. As a long-term source of finance, this is totally unsuitable for a loan for a car.

2. List the financial needs of Elizabeth’s new business under the headings of (a) short term, (b)medium term and (c) long term. (15 marks)Comment: ‘List’ questions do not require explanations. Make 3 points @ 5 marks each – one each for short,medium and long term. Possible points a student can make to answer this question include:

(a) Short term• Salaries for staff• Light and power bills• Telephone and internet bills• Paper and stationery supplies• Business insurance

(b) Medium term• Computers and printers• Office furniture

(c) Long term• Purchase of office premises • Business expansion

3. Analyse how preparing regular cashflow forecasts can assist Elizabeth to manage the financesof her new business (25 marks)Comment: Make 5 points @ 5 marks each. Students should remember to make their answer relevant to theABQ. Possible points a student can make to answer this question include:

• A cash flow forecast (or budget) is a document showing the planned flows of money in and out of a business or household over a certain period of time. It can be used to predict in advance the size of a business or household's income and expenditure and when they are likely to occur.

• If money flows into her business faster than it goes out, then it has a positive cash flow. A positive cash flow is a good thing because it means that a business is generating enough cash to be able to pay all its expenses, survive and grow.

• If cash is flowing out of Elizabeth’s business faster than it is coming in, then her business will run out of cash and need to borrow (or else it will go bankrupt). This is called negative cash flow. When this occurs a business is living beyond its means.

• Preparing regular cash flow forecasts can assists Elizabeth’s financial planning by helping to predict the size and timing of future cash flows. Cash flow forecasts can act as an early warning system of possible future cash shortages. They can also indicate when cash flow will be positive.

• By predicting cash shortages, cash flow forecasts allow Elizabeth to manage and control her business spending. If a negative cashflow is predicted, forecasts can identify when and where cutbacks or savings need to be made, when savings need to be dipped into or a loan taken out.

• When Elizabeth’s business needs a loan, cash flow forecasts can show how much loan finance will be needed. Such forecasts will reassure banks and investors that a business is being well managed.

Monitoring Business Finances Using Accounts Chapter 13

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13. Monitoring Business Finances Using AccountsLOGISTIXJudith Hannaway has been appointed as Managing Director of Logistix, a family—owned transportcompany that specialises in making deliveries to supermarkets on behalf of small producers. Shehas just come out of her first meeting with Darren Healy, the company accountant, who presentedher with the following financial figures for the business for past two years.

Year 2 Year 1

Sales €160,000 €120,000Gross Profit €30,000 €25,000Net Profit €20,000 €20,000Current Assets €85,000 €75,000Closing Stock €40,000 €35,000Current Liabilities €50,000 €45,000Loans €210,000 €160,000Equity Capital €250,000 €240,000

Judith has a background in human resource management but little experience in finance orinterpreting financial accounts. She has looked over the figures and is happy with them as they showsales rising sharply.

However Darren seems more concerned by the figures. He pointed out to Judith that 75% of thefirm's business is on credit but that the company is also experiences a growing level of bad debts. Heemphasised that one of Judith's priority tasks will be to sort out the amount of credit that Logistixwill allow its customers.

1. Apply ratio analysis to the above data to assess the profitability, liquidity and gearing ofLogistix. Comment on the trends identified. (40 marks)Comment: As this question involves using ratios, students should give the formula before applying it to the datain the questions. Students also need to be careful to read the accounts provided from right to left. For 40marks, this requires applying six different formulas at 5 marks each. A further 10 marks is allocated for thecomments made about the profitability, liquidity and gearing.

Profitability Ratios

Gross Profit MarginGross Profit–––––––––– X 100

SalesYear 125,000----------- X 100 = 20.8%120,000

Year 230,000 --------- X 100 = 18.75%160,000

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Net Profit MarginNet Profit------------ X 100Sales

Year 120,000---------- X 100 = 16.7%120,000

Year 220,000---------- X 100 = 12.5%160,000

Return on InvestmentNet Profit

---------------------- X 100Capital employed

Year 120,000

---------------------- X 100 = 5%160,000 + 240,000

Year 220,000

----------------------- X 100 = 4.3%210,000 + 250,000

Comment on Profitability:• Despite a large increase in sales, Logistix overall profitability is declining. • The declining Gross Margin from 20.8% to 18.75% reveals there is less gross profit being made

to cover expenses. • The more dramatic decline in the Net Profit margin 16.7% to 12.5% indicates that significantly

less net profit is being generated for every €1 of sales. The company needs to control its expenses and costs to reverse this negative trend.

• The company’s return on investment has also slipped from 5% to 4.3%. This indicates a declining ability to generate profits from all of the loan and equity capital invested in the business.


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Liquidity Ratios

Current Ratio

Current Assets----------------------Current LiabilitiesYear 175,000-------- = 1.6745,000

Year 285,000------- = 1.750,000

Acid Test Ratio (Quick Ratio)Current Assets – Closing Stock-------------------------------------

Current Liabilities

Year 175,000 – 35,000------------------- = 0.89

45,000

Year 285,000 – 40,000 ------------------- = 0.950,000

Comment on liquidity:• Logistix should be aiming for a current ratio of at least 2:1 to ensure that it can comfortably meet

its short term liabilities and avoid cash flow difficulties.• Instead Logistix has a ratio of 1.67: 1 in Year 1 but improving slightly to 1.7:1 in Year 2. • The Acid Test ratio reveals Logistix’s ability to access cash quickly to pay off current liabilities.

Every company should be aiming for an Acid Test ratio of at least 1:1. In Year 1, Logistix Acid Ratio was 0.89 : 1 and in Year 2 it was 0.9 : 1.

• Logistix is therefore unable to meet all of its current liabilities and will encounter cash flow difficulties if this is not remedied.

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Gearing Ratios

Debt – Equity RatioFixed interest capital-------------------------- X 100Equity Capital

Year 1160,000------------ X 100 = 67%240,000

Year 2210,000--------- X 100 = 84%250,000

Comment on Gearing• Logistix fixed interest debt is less than its equity capital. This is a positive aspect of the accounts.

However, there has been a large increase in fixed interest (debt) capital from 67% to 84% of the value of equity.

• Increasing fixed interest (dent) capital means more interest on must be repaid on these loans. This will increase the firm’s costs and further undermine its profitability.

2. Identify the main users of financial reports about Logistix and the reasons for their interest.(20 marks) Comment: Make 4 points @ 5 marks each. Students should remember to make their answer relevant to theABQ. Possible points a student can make to answer this question include:

• Logistix managers will want to see how well they are managing the finances of the business compared to previous years and how rival firms are performing. This can assist in management decision-making.

• Logistix owners (shareholders) can see how well the business is performing financially, how much profit has been generated and how healthy their investment is.

• Potential investors in Logistix are interested in the ability of the business to generate profits and pay dividends or interest.

• Banks and lenders to Logistix will also be looking at the ability of the business to repay loans and also the value of any assets used as security.

• Logistix employees are interested in the profitability of the firm and its financial stability, as this can affect their job security and the prospects of receiving wage increases. As industrial relations become more co-operative and partnership-based, employees are often provided with regular financial updates.

• Logistix suppliers can gain information about the firm's ability to pay for goods supplied on credit.

• Logistix competitors can use the information revealed in financial accounts to identify the financial strengths and weaknesses of a business. Such information can reveal whether a business is doing well and likely to expand, or struggling to survive.

• The Revenue Commissioners use Logistix‘s accounts to calculate how much tax will have to be paid. Other state agencies will be interested to know if grants given out have assisted the firm to grow and expand.


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3. Evaluate the importance of preparing (a) a profit & loss account and (b) a balance sheet forLogistix. (20 marks)Comment: Make 4 points @ 5 marks each. This seems like a difficult question but the answer required isactually very straightforward. Students should remember to make their answer relevant to the Logistix ABQ.Possible points a student can make to answer this question include:

• A Profit & Loss (P & L) Account shows the amount of income earned, expenses incurred and profit (or loss) made by Logistix. A P&L is important for a number of reasons:o Annual P&L accounts must be prepared for the Revenue Commissioners so that they can

calculate how much tax Corporation tax has to be paid. o Can be used to calculate Logistix’s Gross Profit Margin (also known as Gross Profit

Percentage) shows the percentage gross profit earned on every item sold. The higher the grossprofit margin, the easier it is to pay the expenses of running the business

o Can be used to calculate Logistix’s Net Profit Margin (also known as Net Profit Percentage) shows the percentage net profit earned on every item sold. The higher this is, the higher theprofitability of the business.

o P&L accounts shows how much was paid out in dividends – this is very important information for investors

o P&L also shows how much was retained in the business for future use.

• A Balance Sheet is a statement of the wealth of Loigistix. It shows all the assets owned and all the liabilities (or debts) owed by the business. A balance sheet is important for Logistix for the following reasons:o Can be used to calculate the firm’s Current Ratio (also known as Working Capital Ratio), i.e.

a firm’s ability to pay its current liabilities. Ideally, this should be at least 2 or, as a ratio, 2:1o Can be used to calculate the firm’s Acid Test Ratio (also known as Quick Ratio). This ratio

measures a firm’s ability to raise cash quickly to pay current liabilities but without having tosell off stock. Ideally, this should be at least 1 or, as a ratio, 1:1.

o Can be used to calculate Logistix’s Debt – Equity Ratio (a.k.a. Gearing or Leverage). This measures the balance between fixed-interest loan capital and equity capital. The lower Logistix can keep its gearing, the less fixed-interest debt it will have to repay.

o Used with a P&L, a Balance Sheet can reveal Logistix’s Return on Investment (ROI), i.e. the firm’s ability to generate profits from the money invested in the business. The higher the percentage, the better.

Evaluation• Preparing regular Profit and Loss Accounts and Balance Sheets for Logistix is time consuming

and requires employing specialist financial staff such as accountants. • However, they are very useful for management control. They allow users to do a financial health

check on Logistix by analysing its accounts. Comparisons can be made between Logistix accounts prepared at different times to observe trends and take corrective action if necessary.

14. Identifying Business OpportunitiesRosewood PerfumeRosewood Perfume was founded ten years ago and has established itself as a small but successfulplayer in the international perfume market. The business was originally established by anentrepreneur who has since sold all his shares to ABC Investments Limited. These new owners haveemployed Sorcha Hanratty as the new chief executive to run the business.

As manager, Sorcha's first challenge was to get the business growing again. At present, the firm'ssales are beginning to decline as larger competitors are now promoting their products with veryexpensive advertising campaigns. The business is now barely breaking even and Sorcha believes thatRosewood cannot compete in the mass market against such larger competitors. Instead she wants toconcentrate on selling products for smaller niche markets.

Sorcha has been looking for new ideas in magazines and on the Internet. One idea that caught herattention is to launch a range of pet perfumes for cats and dogs. 'Many people have pet cats anddogs. If just 5% of them bought Rosewood Pet Perfume, we would have a very successful product onour hands' she thinks.

Sorcha is also aware that Rosewood Perfume is a relatively small business and cannot afford to riskinvesting large amounts of time and money launching a new product unless it is very confident of success.

1. Describe the sources of new business ideas that are available to Rosewood Perfume. (20 marks)Comment: Students should make 4 points @ 5 marks each. Students should select sources of ideas relevantto an existing business like Rosewood Perfume – not a new entrepreneur starting out. Students should alsoremember to make their answer relevant to the ABQ. Possible points a student can make to answer thisquestion include:

• Staff suggestions can be very useful. Many firms offer incentives and rewards to staff to come up with new ideas, even if not ultimately used by the business. Such incentives can encourage a spirit of intrapreneurship in Rosewood.

• Brainstorming is a creativity technique for coming up with new ideas. It can be done individually or as a group to generate ideas. Brainstorming would involve Rosewood staff setting themselves a time limit, quickly writing down as many possible business ideas as they can think of, reviewing all the ideas carefully, considering the pros and cons of each one, and then selecting the best for further research.

• Feedback from Rosewood customers through market research, or complaints or compliments picked up by a firm’s sales staff. Similarly, feedback from sales staff in shops can assist Rosewood in identifying market trends and competitor innovations. These trends can then be used to identify product improvements or new product ideas likely to appeal to customers.

• Rosewood engaging in internet research. Magazines, newspapers, TV, the Internet and other media are often good indicators of changing fashions and interests. Successful businesses are sensitive to changing market trends and can identify business opportunities that are opening up. Sorcha got the idea for pet perfume from the internet.

• If Rosewood’s supplies of a particular raw material are of poor quality, unreliable or too expensive, this may prompt the firm to diversify into producing the goods themselves and sell them to other firms.

• Copying or adapting a rival’s existing successful perfume idea. Copying and adapting business ideas from rivals is a very common occurrence and sometimes the copycat improves on the original. Rosewood might get inspiration from a rival’s innovative packaging, distribution or advertising.

• State agencies such as Enterprise Ireland and County Enterprise Boards can provide assistance to existing businesses like Rosewood looking for new opportunities. They can provide market research information and technical assistance in developing a new product.

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Identifying Business Opportunities Chapter 14

2. Explain how following the stages in the new product development process could help Sorchaminimise the risk of failure. (30 marks)Comment: As there are up to 7 stages involved in developing a new product, students should make at least 7short points at up to 3 marks each. Students should remember to make their answer relevant to the ABQ.Possible points a student can make to answer this question include:

• Stage 1 Idea Generation for Rosewood can come from internal or external sources of new ideas (e.g. an internet search)

• Stage 2 Product screening to sort out the promising product/service ideas from the weak ones. By carefully selecting the most promising ideas, Sorcha can reduce the risk of wasting time and money researching unrealistic ideas.

• Stage 3 Concept Development involves turning the idea into a precise product concept or description that will appeal to Rosewood’s customers.

• Stage 4 Conduct Feasibility Study (preliminary report) into the profit potential of a new product idea. Feasibility studies are carried out to determine market size, equipment and premises needed, the costs of producing the new product/service, investments needed, likely profitability, skills and knowledge need to make this idea a success.

• Stage 5 Develop a Prototype or test samples. This will help Sorcha to identify what raw materials to use, how the product will be manufactured and also to calculate production costs and profits.

• Stage 6 Test Marketing to assess the reaction of the target market in a small-scale trial. Depending on the consumer feedback, the product idea may proceed to production and launch, have to be redesigned or the whole idea scrapped.

• Stage 7 Production and launch - If a product or service idea successfully passes the test marketing stage, then preparations can commence to set up in business. Premises will be secured, pricing, distribution and promotional plans will be prepared and staff hired.

3. Evaluate the benefits of break-even analysis to Sorcha when considering launching a newperfume. (30 marks)Comment: Students should make 6 points @ 5 marks each. Students should remember to include their opinionin the answer. Possible points a student can make to answer this question include:

• The break-even analysis reveals the amount of sales that must be achieved at a particular price in order to cover costs and break even.

• Benefits of breakeven analysis to Sorcha include helping her to calculate the break-even point for a product using a simple formula.

• It can show her how far sales could drop before making a loss.• It can shows the possible effect of price changes on the break-even point and so help Sorcha

decide what prices to charge.• It shows the possible effect of changes in fixed or variable costs on the break-even point can be

easily calculated. • It can assist Sorcha in assessing the financial feasibility of a new product.• Break-even charts can communicate information clearly to Sorcha about costs, revenue,

breakeven point and margin of safety in graph form.• However, breakeven analysis can be simplistic because it assumes that all units produced will

be sold at the same price. In reality, firms often produce more than they can sell and have to sell the remaining stock at a discount.

• Breakeven analysis also ignores the effect that a change in price will normally have on the level of sales. For instance, if prices are increased, then sales are likely to fall and vice versa but break-even analysis ignores this.

• Despite these weaknesses, using breakeven analysis is a useful management tool for Sorcha when considering launching a new perfume.

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15. Marketing Country Crunch Cereal BarsPaula Prendergast had been looking for a new product idea for some time so that she could start herown business. She has investigated many potential new product opportunities but did not find onethat she was happy with, until now that is.

She has identified a very promising possibility for a new range of natural, cereal-based snack barstargeted at young, health-conscious consumers. Her feasibility studies, prototype development andmarket testing have all produced very promising results. Furthermore, as the Irish and internationalmarkets for snack foods is expanding, desk and field market research suggests that such a product hasvery high profit potential if she can get marketing mix correct.

Encouraged by her research, she has decided to go ahead with the idea and to call her productCountry Crunch Cereal Bars. As there are many other competitors in the market, Paula is aware thatshe will be entering a very competitive market. To be successful, her new product will have to beproperly designed to ensure the taste, packaging and brand image are all correct. The new productrange will also have to be sold at the right price and supported by a high profile advertising campaignto build brand awareness and, ultimately, brand loyalty.

1. Describe a suitable imaginary marketing mix for Country Crunch Cereal Bars. (40 marks)Comment: Make 8 points @ 5 marks each, at least one point for each of the 4 Ps. Students should rememberto make their answer relevant to the ABQ. Possible points a student can make to answer this question include:

• A marketing mix consists of four elements (the “4 Ps”) used to turn the Country Crunch marketing strategy and product positioning into reality - product, price, place and promotion.

Product • Paula should design the Country Crunch Cereal Bars to be easy to hold with bite sized chunks• Ingredients and materials should be natural and of high quality• Packaging should be designed to be attractive and reflect the quality of the bars• Country Crunch brand name should be clear and easy to read. The logo should be attractive and

distinctive. Price • Special offer discounts offered on the Country Crunch Cereal Bars initially to attract people to

try the bars. • Once established in the market, the bars could be sold at a slightly premium price to reflect the

high quality ingredients, generates sufficient profits but not too high to discourage customers. Place • Country Crunch Cereal Bars should be distributed to wholesalers who can then sell them onto

retailers. The bars could also be sold through confectionary vending machines. • Internet sales are not a realistic option for relatively low value, impulse purchased confectionary

products.Promotion

• As a new product, Country Crunch Cereal Bars could be promoted using special offer sales promotions in shops. Free samples could also be distributed in shopping centres.

• Advertising can be expensive, especially TV and Radio. Possible invest in some outdoor billboards in large urban areas to build consumer awareness of the new product.

• Discount coupons could be distributed entitling the bearer to a 50% discount on Country Crunch Cereal Bars.

• Paula Prendergast should try to generate some positive publicity in the media by, for example, offering a box of country crunch cereals as a prize in a radio competition, or similar.

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Marketing Chapter 15

2. Illustrate, using a diagram, two suitable distribution strategies for Paula’s product. (20 marks) Comment: Illustrate means to make something clear using examples or illustrations. In this case, a diagramis specifically requested. 10 marks are available for each distribution strategy illustrated. A possible diagrama student can use to answer this question is:

Distribution Strategy 1 Distribution Strategy 2

3 Evaluate two different pricing strategies that Paula could adopt when launching her newproduct. (20 marks)Comment: Make 4 points @ 5 marks each. Since students are asked to evaluate, they need to remember toprovide a personal opinion on the relative strengths and weaknesses of each strategy for Paula Prendergast.Possible points a student can make to answer this question include:

• Paula could adopt a Price leadership / premium pricing strategy. This means Country Crunch Cereals would be sold at a higher price than competitors to create an impression of superior quality. This superior image would need to be reinforced by using other elements of the marketing mix such as expensive ingredients, packaging and stylish promotion.

• This would make Country Crunch bars more expensive than rivals and will probably result in far less sales. If prices are set too high, Paula’s business could end up making a loss.

• Paula could adopt a market penetration pricing strategy. This means charging an initial low price is charged for Country Crunch Cereals bars in order to tempt customers to try the new product. If they like it, they will become repeat customers.

• If successful, this pricing strategy could allow the business to capture as much market share as quickly as possible. Sales may also increase to a level where she can generate economies of scale (e.g. bigger discounts when buying raw materials). However, Paula should not set her price so low that she makes a loss.

• Evaluation: Both pricing strategies are risky for the business. As a lower risk strategy, I recommend the market penetration strategy. It will encourage customers to try the bars and, overall, represents the lowest risk.

Country Crunch Cereals Country Crunch Cereals

Wholesalers

Small Retailers

Consumers

Large Retailers (e.g. Dunnes Stores)

Consumers

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16. Getting StartedLunch BitesWhile working part time in her local supermarket, Susan Kearns noticed the large number ofsandwiches and rolls sold each day. She also noticed how basic and plain they were, yet they still soldwell because of their convenience to students and workers from nearby schools and businesses.

Susan went home, produced twenty sample sandwiches and rolls with different fillings, such ascarrot and apple, cheese and beetroot, and took them to the supermarket. When she spoke to themanager she got a very favourable response and was told they could be put on sale to test customerresponse. She was also told that the contents, weight and price would have to be clearly labelled onthe packaging.

The next day the supermarket asked Susan to supply fifty as they had sold out the previous day.These also sold out and the supermarket offered her a contract to supply 200 rolls daily. She was alsodelighted to hear that other branches in the supermarket chain would be interested in stocking herrange of sandwiches.

However, there was a problem. Susan was told that under hygiene regulations, she could not usean ordinary domestic kitchen to supply the supermarket. She would need to use professional cateringfacilities. "What seemed like a promising but small business idea is now beginning to look like amore substantial enterprise," says Susan. Despite this obstacle, Susan remains undeterred and is nowdetermined to take advantage of this clear business opportunity to start up her own business, whichshe has already named Lunch Bites.

1. Identify three types of legal business ownership that Susan can use to set up in business. (30marks)Comment: Make 6 points @ 5 marks each. Students should remember to make their answer relevant to theABQ. Possible points a student can make to answer this question include:

Susan Kearns can choose from a number of different legal structures. Each varies in terms of therisks involved and its ability to raise extra finance for the business.

• Sole traders own and manage their own businesses. There are no rules or expenses involved in formation. As a sole trader, Susan also does not have to share profits.

• However, it can be risky as the sole trader can be held personally liable for all the debts of the business and can lose ‘non-business’ assets such as their private home.

• Partnerships are where two or more people (but not more than twenty) are in business together in order to make a profit. Having business partners can give Susan’s business more finance, expertise and skill than a sole tradership. The other partners can keep the business going if one of the partners falls ill.

• There are no rules regarding setting up a partnership but profits must be shared and each partner will be held personally liable for any debts that the business incurs.

• Private limited companies (Ltd.) are businesses registered with the Companies Registration Office that are owned by a maximum of fifty investors called shareholders. The shareholders are not personally liable for any debts of the business, which reduces the personal risk for entrepreneurs. However, in a company, profits must be divided among shareholders according to the number of shares they hold.

• Susan needs to be aware that forming a limited company also involves considerable paperwork to complete. Furthermore, companies are required by law to have their accounts audited by an accountant and filed annually with the Companies Office for public inspection. Most of the large businesses in the country started out as sole traders or partnerships but as they expanded, they became limited liability companies. Instead of a limited company, a further option is to set up as a co-operative.

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Getting Started Chapter 16

2. Recommend one method of production Susan should adopt. Give reasons for your answer. (15marks)Comment: Make 3 points @ 5 marks each. Students should remember to make their answer relevant to theABQ. Possible points a student can make to answer this question include:

• I recommend that Susan Kearns use batch production. Batch production involves manufacturing a limited number of identical goods at the same time, such as bread or books. Each stage of production will be completed for all goods in a batch before all the goods move onto the next stage.

• An advantage for Susan of batch production is that after one batch has been completed, the sandwich ingredients can be changed before beginning the next batch. This assists marketing by allowing the business to produce a variety of goods to cater for the needs and tastes of different market segments.

• Also, batch production allows a business to benefit from cost savings as the same machinery can be used to make 20 cakes at a time rather than just one. This increases efficiency and reduces

waste compared to job production.

3. Draft a business plan that Susan could present to her bank to help her negotiate a loan. (30marks)Comment: Make 6 points @ 5 marks each (5 marks for each section of the plan). This is an imaginary planso students can make whatever assumptions they like as long as it does not contradict any information providedin the ABQ. Students should structure their plan according to the six key Business Plan headings of:

• Description of Product/Service• Description of Entrepreneur• Management• Production• Marketing• Finance. Possible points a student can make to answer this question include:

Business Plan for Lunch Bites

DESCRIPTION OF THE PRODUCT OR SERVICE Lunch Bites will produce sandwiches that are made entirely from natural ingredients and thick slicesof bread. DESCRIPTION OF ENTREPRENEURS / OWNER Ms. Susan Kearns (entrepreneur) has a Leaving Certificate with four honours and two passes andexperience working in supermarket retailing. MANAGEMENT The business will be set up as a limited company. Overall responsibility for production, finance andmarketing management will rest with Ms. Kearns. As the business grows, full-time production staffwill be hired PRODUCTION The business will require premises that are convenient for making and receiving deliveries, largetable for making sandwiches, two large fridges for storing ingredients, and a delivery van. Sandwichingredients can be sourced easily from local wholesalers. A batch method will be used. Initially, apart-time assistant will be hired to help with making the sandwiches. Quality will be maintainedthrough proper staff training.


MARKETINGNo competitors in the local marketplace producing similar sandwiches Product: The cakes will contain no artificial ingredients and will be made with thick bread slices andchunky fillings. They will be packaged in an eye-catching cardboard box. Price: Sold at a slightly higher price than competitors' products. Place: Distributed through supermarkets and health food stores. Promotion: Free samples will be distributed through stands at local supermarkets and shops to temptpeople to buy a sandwich.FINANCESExpected start-up costs (rent, equipment, working capital etc.) €12,000Sources of finance (savings, grants,) €14,000Profitability per month €1000 per month.

2. Evaluate the risks and benefits to Susan of seizing this enterprise opportunity. (20 marks)• The possible risks for Susan include investing a lot of personal time, effort and personal finance

in the business. She may also have to borrow money which may have to be repaid regardless of whether the business makes a profit or not.

• However, the possible benefits for Susan include the opportunity to be her own boss.• Creativity and personal satisfaction of offering goods and services to the public that they

themselves enjoy or believe are important. Running an enterprise can provide an outlet for a person's need for creative expression.

• Income. For many people starting off in business, the financial incentive is important because they know that few people become wealthy and financially independent working for someone else.

• Challenge of making something new happen, such as creating her own business and new products.

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Business Expansion Chapter 17

17. Business ExpansionJupiter Software LimitedIrish firm Jupiter Software is a start-up software company based in Kerry specialising in producingeducational software such as maths and language teaching programmes. They have been verysuccessful in the Irish market, where sales have increased to €10 million and the number of staffemployed has risen to nearly forty. However, after just a few years, sales have now begun to flattenout and the owner, Eoin Connolly, feel that the domestic market has now reached saturation and thatit is time to look for other ways to expand.

From holiday experience he is aware that major sales opportunities exist in many foreign countriesfor the firm’s maths and language training products. As a first step, he is investigating the UK marketbecause of its large size and proximity to Ireland. He has identified three possible expansion routesinto the UK.

The first is to export their goods directly for sale in large UK retail outlets.The second option is through entering a licensing agreement with British firm Bulldog Software.

This firm has already contacted Jupiter and offered to sell the software in the UK under its ownBulldog software brand. In return it is offering a 5% share of the price of each item it sells.

The third option is to set up a joint venture with Liberty Training Limited. This large Americancompany has recently approached Jupiter about setting up a separate subsidiary together to jointlydevelop and market software tailored specifically for the UK market. If it goes ahead, the subsidiarywould be owned 50:50 by Jupiter Software and Liberty Training. Eoin has done some research whichhas revealed that the Welsh government would provide generous business grants if the subsidiarywere to locate in Wales and employ local people.

1. Analyse the risks and benefits to Jupiter Software Limited of expanding. (20 marks)Comment: Make 4 points @ 5 marks each. There many points that a student could make, including:

• Expansion sometimes reduces profitability. Diseconomies of scale are factors that cause organisations to become less efficient as they grow. Diseconomies usually arise from poor communications and lack of proper management control, which could adversely affect Jupiter Software staff motivation and industrial relations.

• In small businesses, communications is mainly verbal which is cheap, fast and allows for feedback. However, larger organisations have more staff which makes communications far more complex as it can require using memos, reports, letters and emails that result in far slower and sometimes very poor quality decision-making. Communications delays and misunderstandings between could staff could become more common.

• Management - Control is easier in a small business where one person is often co-ordinating the strategy and work to be done. In large organisations, planning, organising and controlling become more difficult and authority has to be delegated to managers.

• Even with careful market research, expanding into new products or markets involves an element of risk. Care must be taken to ensure that there is a large enough market for Jupiter Software’s products.

• Business expansion requires major investment of time and money in market research, product development, test marketing, new machinery, staff training, advertising, etc. If Jupiter Software borrows this money, then interest payments on a loan will become an added business expense. If the expansion fails, Jupiter Software may find itself stuck with large loan repayments but with no extra income, leading to serious cash flow problems. If expansion was financed by a loan secured on an asset, then this asset may have to be sold to meet the bank repayments.

• Jupiter Software staff may become alienated if they feel like just a ‘cog in the machine’ of a larger organisation. Reduced motivation and commitment will increase absenteeism, sick leave and

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human errors, leading to reduced productivity and increased staff turnover. Take-overs frequently result in job losses among staff due to rationalisation. This can lead to industrial relations problems and conflicts.

• Larger organisations are often less sensitive to customer needs and unable to provide customers with the kind of fast, personal attention and service that a smaller business can offer. This can lead to a longer term decline in sales.

Comment: Possible points to make about benefits include:• Successful expansion for Jupiter Software will generate greater economies of scale and higher

profitability. This will increase the value of the business. • A larger, more profitable Jupiter Software will also be able to pay larger dividends to investors

and shareholders. Banks will have greater confidence in the ability of an expanding firm to repay its loans and this will increase their willingness to provide further loans.

• Additional managers may have to be recruited to handle the heavier workload. For some entrepreneurs, delegating authority to others can be difficult. However, successful delegation can strengthen the business, as the entrepreneur is free to concentrate on identifying opportunities, leaving the day-to-day management to others.

• As Jupiter Software expands, it will be able to afford better employment packages such as salaries, training, benefits-in-kind, canteen facilities, pension contributions and promotion prospects for staff. Larger firms are also in a better position to provide job security.

• Suppliers are likely to receive larger orders as Jupiter Software expands using internal / organic methods of growth. Suppliers will have greater confidence in the ability of Jupiter Software to pay its bills and will be more likely to offer discounts and flexible terms.

• Jupiter Software customers can benefit from a greater choice of goods if expansion is by internal / organic growth. Economies of scale can allow Jupiter Software to provide a wider product mix at competitive prices. Better quality goods may be produced Jupiter Software can invest in more skilled staff and new technology.

2. Evaluate the three different expansion options Eoin has identified for Jupiter Software. State,giving reasons, which option you would recommend. (30 marks)Comment: Make 6 points @ 5 marks each, including at least one point per option identified by Eoin. Possiblepoints a student can make to answer this question include:

Exporting option• Exporting to foreign markets many times larger than Ireland’s could be very profitable for

Jupiter Software. Exporting will not affect Eoin’s ownership or control of the business. • However, exporting may take a long time to generate significant profits due to the need to invest

in adapting the marketing mix, making changes to products and to adapt the goods to foreign needs, and setting up distribution facilities.

• Exporting also means entering unfamiliar markets that can be quite different from the Irish home market in terms of customer needs, taxes, regulations etc.

Licensing option• Licensing means allowing other firms to use or sell an invention or design in return for payment

of a licence fee or royalty. For Jupiter, licensing software to Bulldog can be a fast, low-cost and low-risk expansion method.

• However, licensing to Bulldog will involve loss of profits and control over the use of patents and trademarks. Jupiter will be paid just a 5% share of the price of each item sold.

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Joint Venture option• Strategic business alliances (joint ventures) occur when two or more firms (e.g. Jupiter and

Liberty Training) agree to co-operate in the establishment of a project or business together. The firms involved remain separate but agree to come together to share their skills and resources to maximise the possibility of success.

• For Jupiter, this can be a fast, low-risk method of expansion as costs, technology and other resources needed to develop new software products specifically for the UK market can be shared with Liberty Training. Welsh government will also provide generous grants if a joint venture company were to locate in Wales.

• However, Jupiter would have to share profits and control with Liberty Training. Also, the need for greater communications and shared decision-making between the strategic partners can also slow down the speed of expansion.

• Evaluation: For the above reasons, it is my opinion that licensing is the lowest cost, lowest risk and fastest method for Jupiter to commence exporting. Nevertheless, Eoin should also continue negotiations with Liberty Training about the joint venture proposal. As a longer term strategy, a joint venture may prove to be a very lucrative venture.

3. Draft a short memo to Eoin outlining, with reasons, the sources of finance that you wouldrecommend for a business looking to expand. (30 marks)Comment: Make 6 points @ 5 marks each. Marks are awarded for using the correct layout for a memo so itis important that students use a Memo heading when answering this question. Students should mentiongrants, equity and loan finance in their answers. Possible points a student can make to answer this questioninclude:

Memo

To: Eoin ConnollyFrom: A StudentDate: 14th OctoberSubject: Finance for business expansion

Grants• Grants are an ideal source of finance for Jupiter Software’s business expansion as there is no loss

of ownership or control of the business. There are also no dividends, interest or loan payments to be made and the grant usually does not have to be repaid unless conditions of the grant are broken. The main sources of grants in Ireland are county enterprise boards and Enterprise Ireland.

Equity• Jupiter Software could use equity to finance business expansion. Equity refers to finance

provided by the owners of a business. Equity can be raised by retained earnings where profits are retained in the business to finance future developments. Equity involves no interest or loan repayments, nor is there any loss of ownership or control over the business.

• As a limited company, Eoin could issue (sell) shares in Jupiter Software. However, any sale of shares to new shareholders will dilute the percentage controlled by Eoin. Businesses with strong growth potential, like Jupiter, will find it easier to persuade venture capitalists to buy shares.

BUSINESS EXPRESS ABQ AnswersUNIT5

Loans and debentures• Banks are traditional providers of finance to businesses. Before Jupiter Software could take out

a long-term loan to finance expansion, it must be confident that it can generate sufficient income to pay back the loan plus annual interest. Banks do not like taking risks and will usually require a valuable asset as security for providing any long-term loans.

• Ownership and control of the business is unaffected as long as Jupiter’s interest and loans repayments are made on time. Security is usually required for most long-term loans. If the profits generated by the loan are less than the cost of repayments, then the business will be burdened with a large debt but no extra income to finance it.

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18. Industries and Sectors in the Economy BallymoreColette Turner lives in Ballymore, a small town that has experienced a lot of unemployment over theyears. Today, she has read in her local newspaper about three potential new businesses consideringlocating in her town. If they choose to locate in the community, each firm expects to employapproximately 100 staff.

The first business is GameX, an American transnational corporation producing electroniccomponents for computer games consoles. It is looking for mainly low-skilled staff to work onassembly lines manufacturing the components for export to other EU countries. Most of the rawmaterials for the production will be imported from outside Ireland.

The second firm is Fidelity Insurances, a financial services company that specialises in sellinginsurance products to customers globally. It will be looking mainly to employ highly skilled third-level graduates for its operation. As an international services company, access to high qualityinformation and communications technologies is essential to its choice of business location.

The third firm is Green Dinners, a well-established Irish firm that produces a wide range of frozenvegetable and other foods for the domestic and international markets. It is considering opening afactory in the town as it needs to increase its production capacity to meet steadily increasing demandfor its products. It expects to employ a mixture of high- and low-skilled staff. It will also be sourcingmost of its raw materials from local farmers.

1. Assess the possible impact on the local economy of each of the above firms if they choose tolocate in Ballymore. (30 marks)Comment: Make 6 points @ 5 marks each. 10 marks are awarded for the impact of each of the three firms.This means making at least 2 points @ 5 marks each per firm. Students should remember to make theiranswer relevant to the ABQ. Possible points a student can make to answer this question include:

Game X• Employees – 100 jobs would be created for local people. However, as low skilled jobs, these

will be relatively low paid jobs. They are also less likely to secure jobs as the company could easily switch production at a later date to another country with cheaper wage costs.

• Suppliers – As most of the raw materials will be imported from outside Ireland, there will be little extra business for Irish suppliers. However, there may be opportunities for suppliers of services such as cleaning, catering, maintenance and security services.

• Government – will benefit from collecting taxes on staff wages and company profits. However, low wage jobs will pay less tax than high paid jobs.

Fidelity Insurances• Employees - 100 jobs would be created for local people, especially those with third level

education. As high skilled jobs, these will be relatively highly paid. It could attract more people to live in the local community. These jobs are also less likely to be more secure jobs. Although it could happen, the company will find it more difficult to switch production at a later date to another country with cheaper wage costs.

• Suppliers – As a service industry, Fidelity will not consume large amounts of raw materials. This suggests that there will be little extra business for suppliers of raw materials. However, there may be opportunities for suppliers of services such as cleaning, catering, maintenance and security services.

• Government will benefit from collecting taxes on staff wages and company profits. High wage jobs will pay more tax than high paid jobs.

Industries and Sectors in the Economy Chapter 18

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Green Dinners• Employees – 100 jobs would be created for local people. Assuming the company is producing

goods for the Irish market, the company is less likely to switch production at a later date to another country with cheaper wage costs as this would increase transport and refrigeration costs.

• Suppliers – As most of the raw materials will be supplied by local farmers, there will be considerable extra business for Irish suppliers. This will further boost local employment and incomes. There may also be opportunities for suppliers of services such as cleaning, catering, maintenance and security services.

• Government – will benefit from collecting taxes on staff wages and company profits.

2. Discuss the reasons why a firm such as GameX may consider Ireland as a manufacturinglocation. Refer to the text in your answer. (30 marks)Comment: Make 6 points @ 5 marks each. Students should remember to make their answer relevant to theABQ. Wherever possible, students should refer to the ABQ in their answer. Possible points a student can maketo answer this question include:

• Low rates of corporation tax available to GameX compared to other countries. • Availability of grants to GameX from IDA Ireland, FAS, etc. to pay for premises, staff training etc. • Availability of a highly educated and skilled labour force, if needed by to Game X.• A low level of strikes and industrial unrest. • A stable economic and political environment makes planning and doing business easier and far

less risky for GameX. • GameX gain free access to the EU market, without government-imposed trade barriers such as

tariffs (import taxes).

3. Evaluate the importance to the Irish economy of an indigenous agribusiness firm such asGreen Dinners. (20 marks)Comment: Make 4 points @ 5 marks each. Students should remember to make their answer relevant to theABQ. Wherever possible, students should refer to the ABQ in their answer. Possible points a student can maketo answer this question include:

• Agribusiness refers to those manufacturing firms such as Green Dinners who use agricultural produce such as dairy, meat, fish, cereals, fruits and vegetables as their main source of raw materials.

• Loyalty: Indigenous agribusiness firms like Green Dinners are more loyal to Ireland and unlikely to relocate abroad, even during an economic downturn. This creates more economic stability.

• Linkages: Indigenous agribusiness firms like Green Dinners get their raw materials and supplies from other local businesses. Agribusiness is a very important sector of the Irish economy as it buys most of its raw materials from Irish agriculture and also exports over 50% of its output.

• Enterprise culture: Successful indigenous agribusiness firms inspire other entrepreneurs, thereby encouraging further job and wealth creation.

• Growth potential: Indigenous agribusiness firms can grow from being small local businesses, to national businesses and onto become international businesses with Ireland as their base e.g. the Kerry Group.

• Profit distribution. Unlike with foreign-owned firms, the wealth generated by indigenous agribusiness firms is mainly spent within the economy and not repatriated to other countries. This helps to create further business and employment opportunities within Ireland.

• For these reasons, indigenous agribusiness firms such as Green Dinners are very important to the Irish economy.

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Types of Business Organisation Chapter 19

19. Types of Business OrganisationMolly Malone’s RestaurantGráinne O'Neill opened a traditional Irish restaurant, called Molly Malone's, several years ago. Shestarted off as a sole trader and steadily built up a good reputation for the business. The restauranthas become very popular, particularly with tourists, and during the summer she often has to turnaway bookings.

When Grainne needed to expand her business to cope with the increasing trade, she decided tobring in a partner, Trevor, to provide the extra finance and management skills the business required.With the help of retained earnings and a bank loan, Molly Malone's has now expanded to includetwo more restaurants, and has a combined turnover of over €3 million a year.

Gráinne and Trevor would like to open more restaurants but do not have the finance to do so.They are also aware that as a business grows, so too does the risk. Given the success of the existingrestaurants, they are also interested in expanding the business abroad, especially in the US andGermany where they feel there is demand for traditional Irish restaurants. It has been suggested tothem that they consider franchising as a possible route for this expansion.

1. Evaluate the potential risks and benefits of operating the restaurant as a partnership. Refer tothe text in your answer. (20 marks)Comment: Make 4 points @ 5 marks each. At total of 10 marks are awarded for risks and 10 marks forbenefits. Students should remember to include an evaluation (i.e. an assessment of the risk / benefit) in theirpoints. Students should remember to make their answer relevant to the ABQ. Wherever possible, studentsshould refer to the ABQ in their answer. Possible points a student can make to answer this question include:

• A partnership is two or more people (but not more than twenty) who are in business together in order to make a profit.Benefits for Trevor and Gráinne

• Easy to form between Gráinne and Trevor. The Deed of Partnership agreement is optional. • Work and responsibilities can still be shared between Gráinne and Trevor, leading to less stress

/ pressure for the original owner(s). • New partners, like Trevor, can bring different talents, skills and expertise into a business that

should mean better decision-making. • Additional partners can be brought into the business if needed to contribute extra finance or the

expertise needed to expand the business. • Like sole traders, the financial affairs of the business are confidential. • Partnerships can have synergies where the sum of the talents of the partners far exceeds their

individual contributions. This can significantly boost profitability and reduce the business risk.

Risks• However, if either Trevor or Gráinne dies or leaves, the partnership ends. • Partners may have disagreements, making the business difficult or even impossible to run.

Delays in decision-making may mean missed opportunities or even business failure. It can also be more difficult for partnerships to borrow finance than for a company.

• Profits are shared between the partners. Each partner usually has unlimited liability. This means that a creditor (a person who is owed money by the business) can sue each of the partners individually for all of the money owed by the partnership. It is very important to know your partners well and be able to trust them with everything.

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Evaluation• Overall, if the partners can get along, the benefits can outweigh the risk of being in business in

partnership.

2. Assess the potential benefits for Trevor and Gráinne of changing their business partnershipinto a private limited company. Refer to the text in your answer. (30 marks)Comment: Make 6 points @ 5 marks each. Students are asked for the potential benefits only. Don’t wastetime listing risks / disadvantages. Possible points a student can make to answer this question include:

• Private limited companies are businesses registered with the Companies Registration Office that are owned by a maximum of fifty investors called shareholders. The money raised from the sale of shares to these shareholder investors is used to finance the business. Any profits made are divided among shareholders in the form of dividends.

• Companies are legally independent of their owners. This means that Molly Malone’s Restaurant Limited can continue to exist even if a shareholder dies.

• The company will be owned by its shareholders and it is cheap and easy to transfer the legal ownership of shares from one person to another.

• Companies can raise finance for start-up and expansion through selling shares. Molly Malone’s Restaurant Limited could motivate employees by giving them a shareholding in the business.

• Being 'incorporated' as a private limited company can also improve business image and credit worthiness with suppliers and banks.

• The owners (shareholders) will have the protection of limited liability. If there is just one shareholder, they can keep all the profits and not bother with AGMs.

• Assessment: Turning the business into a limited company can offer significant advantages to Grainne and Trevor.

3. Explain how Gráinne and Trevor could use franchising to expand the business. (30 marks)Comment: Make 6 points @ 5 marks each. Students should remember to make their answer relevant to theABQ. Wherever possible, students should refer to the ABQ in their answer. Possible points a student can maketo answer this question include:

• Franchising means the renting (by a franchiser) of a complete business idea, including name, logo and products to someone else (known as a franchisee). It is a sophisticated form of licensing.

• Licensing is growing in popularity as a method of business expansion, particularly in retailing and service industries, such as food retailing.

• Franchising can allow Molly Malone’s to expand rapidly. • It would be relatively low cost for Grainne and Trevor as most of the start-up finance is provided

by the franchisee. • It is low risk to the franchiser (Grainne and Trevor) because if a franchisee breaks the conditions

attached, the contract can be cancelled.• Molly Malone’s has a proven track record and is therefore more likely to succeed as a franchise

business.• Franchisee receives training, advice and other supports from the Grainne and Trevor.• Grainne and Trevor can provide a ready made brand image and reputation for franchisees. • However, Trevor and Grainne need to be aware that control will be lost over the day-to-day

management of any franchise outlets.• If unsuitable franchisees are selected, the reputation of the whole Molly Malone’s Restaurant

business could be damaged by poor quality standards, staff problems, etc.

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Business, the Economy & Community Development Chapter 20

20. Business, the Economy & Community Development CarrigbawnCarrigbawn is a small coastal town located at the foot of a scenic mountain range. With littleemployment, most local people have to leave the town for work, or else commute long distancesevery day into the nearest city located over 50 kilometres away. Aside from a few shops, the last localremaining employer is a small local dairy. However, it has been announced that due to rationalisationin the agribusiness industry, it is to close at the end of the year.

Over the years, many of the buildings have become derelict and litter and graffiti is an increasingproblem in the town which seems to be facing a bleak future.

Residents decided to organise a local meeting to discuss the town’s future. A large crowd turned upand a wide-ranging discussion was held as people shared ideas about what to do. Many of theparticipants mentioned the different skills and talents that existed among residents which could helpto generate local enterprises.

For example, one person suggested opening a local seafood restaurant while another suggestedorganising an annual town festival. An unemployed mechanic suggested opening a Vintage carmuseum in a derelict building while a local musician suggested that it could be used as aperformance venue. A local farmer suggested organising a weekly farmers’ market selling organicfoods and arts and crafts in the town square.

From the meeting, the residents of Carrigbawn realised that the town had lots of ideas and that thefuture did not have to be bleak. They also realised that, whatever community enterprises were set up,the town needed a facelift. A Tidy Towns committee would be a good place to start, as it would helpto get the town looking good and to inspire more confidence and self-respect in the community.

1. Conduct a SWOT analysis of Carrigbawn using the above information. Refer to the text inyour answer. (20 marks)Comment: A SWOT analysis can be done by simply listing points under the four headings of strengths,weaknesses, opportunities and threats. It is also acceptable to present the points in the form of four quadrants.Students should identify points under each SWOT heading. Possible points a student can make to answer thisquestion include:

Strengths• Coastal location• At foot of scenic mountains• Mountain walks Weaknesses• Most local people commute to work outside of the town• Many of the town’s buildings are derelict • Litter and graffiti spreading around town

Opportunities• Growing tourism industry• City 30 miles away• Local seafood restaurant• Annual town festival• Vintage car museum• Performance venue• Weekly farmers’ market• Tidy Town committee Threats• Closure of local dairy• Defeatist, negative attitude among local people

2. Outline the steps that the residents of Carrigbawn could take to promote the development andprosperity of their town. (20 marks)Comment: 4 points @ 5 marks each. Students should remember to make their answer relevant to the ABQ.Possible points a student can make to answer this question include:

• People - Get a group of local Carrigbawn people together by organising a meeting of interested individuals.

• The group should be representative of the views of as many local interests as possible and could include local people involved in business, voluntary groups, community groups, schools, colleges, churches, trade unions, clubs and societies and local government.

• An Organisation - Create a management team who can work together. They could decide to set up a formal business structure, such as a Carrigbawn community-owned company or co-op. It will be important to have people with good management and business skills involved in the organisation.

• A Plan - Put together a realistic community development plan for Carrigbawn. This involves diagnosing the core problems and needs of Carrigbawn such as creating jobs, improving the local environment, providing local services, etc. Conducting a SWOT analysis of the local community can be very useful.

• Finance - Raise the finance needed to implement the plan. Finance from within the community can be sourced from donations from local people and local businesses and by organising fund-raising events such as raffles. Local credit unions are also willing to provide loans at low interest for projects which will help their own local community. Finance from outside the Carrigbawn community can come from grants from various state agencies including County Enterprise Boards and EU LEADER Programmes.

3. Explain the possible implications for Carrigbawn of (a) a drop in interest rates, (b) a sharprise in unemployment. (20 marks)Comment: 4 points @ 5 marks each. This is not as tricky a question as it may seem if students structure theiranswer around the key business variables of Sales/Costs/Confidence. Possible points a student can make toanswer this question include:

Impact of a drop in interest rates for Carrigbawn will depend on the size of the interest ratechange. A bigger drop will have more of an impact.

• Sales in Carrigbawn businesses may rise. Lower interest rates mean more consumers can afford to take out personal loans or buy on hire purchase. Household mortgage repayments will fall freeing up more money for discretionary spending. As a result, many businesses, including local ones in Carrigbawn, could experience an increase in sales.

• Costs in Carrigbawn businesses may fall. Lower interest rates make borrowing money cheaper for firms and consumers. Since nearly every business borrows money, this will reduce some business costs and boost profitability. It will also make it cheaper for firms to borrow finance for expansion and for consumers to borrow for purchases.

• Confidence among local Carrigbawn businesses may rise. Business confidence is boosted when the cost of borrowing becomes more affordable. Low interest rates encourage investors to take their money out of deposit accounts and invest in business projects that may be more lucrative. Business start-ups and expansions are encouraged.

Impact of a sharp rise in unemployment for Carrigbawn• Sales in Carrigbawn businesses may fall. Unemployed people smaller incomes to spend on

goods and services in local shops and businesses. This will reduce overall demand in the local Carrigbawn economy.

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• Costs in Carrigbawn businesses may fall. Demand for wage increases tend to fall during periods of high unemployment. It also becomes easier to recruit staff at lower wages, which helps to keep wage costs down. However, high unemployment can also lead to higher government taxes to pay for the additional social welfare payments.

• Business confidence in Carrigbawn will decline. High unemployment will erode community confidence and undermine local businesses. Additional government spending may be required to deal with the social problems sometimes associated with unemployment, such as crime and vandalism. All this will put pressure on the government to increase taxes on households and businesses.

4. Identify two State agencies that could assist Carrigbawn’s development and outline twospecific ways that they could assist the local community. (20 marks)Comment: Two agencies are county enterprise boards and FÁS. Students should remember to make theiranswer relevant to the ABQ. Possible points a student can make to answer this question include:

County Enterprise Boards• County enterprise boards (CEBs) are State agencies responsible for assisting entrepreneurs who

want to start up small business and create employment in their own county. The board of every CEB represents a partnership between various local stakeholders, including local businesses, voluntary groups, trade unions, state agencies and elected public representatives.

• The local CEB can assist Carrigbawn in conducting local resource audits for the community. Each CEB is responsible for identifying local assets and resources that can be developed for the benefit of the local economy.

• Provide a grant for conducting feasibility study, market research and preparing detailed business plans for Carrigbawn.

• Proving a grant to purchase capital equipment. However, the CEB may want an equity stake in the ownership of the business or request that a proportion of it be repaid over time.

• Providing grants for employing or providing training to local people • Providing training courses for aspiring and new Carrigbawn entrepreneurs in finance, HRM,

marketing and other business topics.• Providing a mentoring service where an experienced businessperson acts as a free advisor to the

new business during its start-up period.

FÁS• FÁS is the State training agency and runs a number of programmes to assist local community

development. • The FÁS Community Employment Programme provides eligible unemployed people and other

disadvantaged persons with an opportunity to engage in useful work within their communities on a temporary basis.

• A Carrigbawn Community development group can apply for funding to employ staff to assist with non-commercial projects that will assist community development. The benefit for FÁS is that the programme helps long-term unemployed people to re-enter the active workforce by giving them a return-to-work routine and assisting them to enhance and/ or develop their technical and personal skills.

• The FÁS Social Economy Programme aims to support the development of social economy enterprises that will benefit the economic and social regeneration of a local community. The programme provides grants to community projects to employ long-term unemployed or other disadvantaged persons in commercial businesses designed to assist the community.

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21. Ethical, Social & Environmental Responsibilities in BusinessSpiroz ChemicalsThe Spiroz Chemical Corporation has purchased a site in Drumcooley, a scenic rural area, where itintends to build a chemical plant. The company, which has a poor environmental recordinternationally, does not anticipate any difficulties in obtaining planning permission for the plantas it expects to be a substantial local employer and some local people have welcomed the news.

However, the proposal has met with opposition from others. The Spiroz chemical factory willproduce emissions into the atmosphere and local farmers are concerned about how these emissionswill affect the purity and reputation of their meat, dairy and vegetable produce. They are concernedabout the negative reputation that similar chemical plants have acquired in other parts of the country.Local residents and environmentalists are concerned about the health effects on local people of theemissions from the factory. Some local businesses are also concerned about the impact of theproposed location on tourism and related businesses.

However, not all the locals are against the new industry as some businesses see it as bringingvaluable employment and income to the local community. Tensions are increasing as the level oflocal opposition has already seriously delayed the commencement of construction work on the site.

1. Discuss the social responsibilities of Spiroz to its stakeholders. (30 marks)Comment: 6 points @ 5 marks each. Students should remember to make their answer relevant to the ABQ.Possible points a student can make to answer this question include:

• Business social responsibility refers to the obligation of every business, including Spiroz, to respect the interests of all the stakeholder groups in society. It means looking at the wider effects of business decisions on others.

• Spiroz can demonstrate social responsibility towards employees by not tolerating discrimination, bullying or harassment in the workplace and ensuring jobs are designed to be interesting and challenging. Employees should be provided with fair pay and safe working conditions and secure and continuous employment wherever possible.

• Spiroz can demonstrate social responsibility towards Investors by providing open and honest financial information, paying a fair dividend to shareholders, keeping honest and accurate financial accounts and avoiding paying excessive salaries or perks paid to managers.

• Spiroz can demonstrate social responsibility towards Suppliers by engaging in fair business negotiations, free of pressure or duress. Suppliers should be treated fairly and all contracts and agreements honoured while bills should be paid in full and on time. Spiroz should avoid suppliers that use child labour or other unethical practices.

• Spiroz can demonstrate social responsibility towards Customers by producing safe and reliable goods and services, at fair prices. Spiroz’s advertising should be truthful and accurate advertising while any complaints dealt with speedily and helpfully. All consumer protection legislation should be obeyed.

• Spiroz can demonstrate social responsibility towards Government by ensuring that the correct taxes are paid on the firm’s profits (e.g. Corporation Tax, Capital Gains Tax). All the taxes required by the government should be collected and passed onto the Revenue Commissioners on time (e.g. PAYE and PRSI from employees, DIRT and VAT from customers). Spiroz should ensure that grants from the State are used according to the rules and for the purpose intended and that local, national and EU laws obeyed, both in letter and spirit.

• Spiroz can demonstrate social responsibility towards local communities by ensuring that there is no pollution of the local environment. Spiroz should protect the quality of life of local communities (e.g. sensitive to noise, traffic, aesthetic concerns), support the employment of local people and support local suppliers wherever possible. Spiroz should support local community activities such as sponsoring sports, arts and cultural activities.

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2. Describe the steps that Spiroz Chemicals should take to become an environmentallyresponsible company. (30 marks)Comment: 6 points @ 5 marks each. Students should remember to make their answer relevant to the ABQ.Possible points a student can make to answer this question include:

• Spiroz should take care in deciding what is produced. Spiroz’s products should be designed to be durable and capable of lasting for the maximum possible lifespan. 'Built-in-obsolescence', or deliberately designing goods to wear out after a short period of time is irresponsible and unsustainable.

• Spiroz should produce in an ecologically sustainable manner. Production processes should be located in suitable locations, away from ecologically sensitive areas. Spiroz should be energy efficient and aim to use renewable resources such as wind and solar power instead of non-renewable sources such as fossil fuels. The company should also aim to eliminate pollution from all parts of its production process.

• Spiroz should eliminate waste, especially toxic waste from their operations. Any waste produced (e.g. chemicals) should be re-used or re-cycled where possible. Spiroz should seek the advice of the Environmental Protection Agency to ensure compliance with environmental laws or to seek advice on new developments. The law requires many new business developments to produce an environmental impact assessment (EIA) describing how a proposed business will affect the ecology of an area.

• Spiroz should take care in planning for disposal of its products after use. Spiroz products should be easy to reuse, repair or recycle after use. If goods cannot be recycled then they should be designed for safe disposal back into the natural environment. This means that, wherever possible, only natural raw materials or ingredients should be used.

• Spiroz Chemicals should conduct regular environmental audits to guide management decision-making. An environmental audit is an independent study of the impact of the business on the environment. It focuses on four basic areas: what is produced, how it is produced, how it is marketed and how it will be disposed.

3. Evaluate the possible effects on Spiroz’s costs and profitability of meeting its environmentalresponsibilities. (20 marks)Comment: 4 points @ 5 marks each. This is a difficult question for any students. Students should rememberto make their answer relevant to the ABQ. Possible points a student can make to answer this question include:

• Operating in an environmentally-friendly manner can both positively and negatively affect Spiroz’s costs and profitability.

• Installing and operating new equipment to reduce pollution and energy use can be expensive in the short term. Initially, this may increase Spiroz’s costs and reduce its profitability.

• Spiroz management must devote staff time and money to continuously monitoring the firm's environmental performance.

• By incorporating the full social and environmental costs of production, Spiroz may have to increase the price of its products. This may lead to loss of sales to competitors and a drop in profits.

• However, longer term, becoming more environmentally-friendly can have positive benefits for Spiroz. Environmental audits can be very useful in revealing areas where major cost savings can be made and greater efficiencies achieved. Reductions in raw material/energy use and less waste/pollution can save Spiroz money and increase the firm’s long term profitability.

• Raising finance can be easier for Spiroz as environmentally responsible firms are also more likely to be able to get loans from banks and government grants. With the growth of 'ethical investing', environmentally responsible firms are finding it easier to raise finance from investors and on the stock market.

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• Environmentally responsible firms find it easier to recruit high quality staff. There will be lower staff turnover and less risk of strikes and other industrial relations problems.

• Overall, I consider the benefits of behaving in an environmentally responsible manner to far outweigh the disadvantages.

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22. Government & BusinessAlpha SystemsAlpha Systems produces electronic gates and security equipment. Founded by entrepreneur BrianLoughrey with help from his local county enterprise board, the firm has grown steadily and nowcontrols nearly 50% of the market in Ireland for such products. It is a very profitable firm and paysmillions in taxes every year. It recently secured a contract to supply security equipment to a largesemi-state company.

Alpha is currently considering taking over another Irish firm with a 20% share of the domesticmarket. If it goes ahead, this expansion will give Alpha control of over 70% of the Irish market.

As the Irish market is quite small, in recent years the firm has focused most of its attention onexporting as a means of expanding the business. With the assistance of Enterprise Ireland, thisstrategy has been very successful and export sales to European countries are now a significant andgrowing part of the business. If this trend continues, the firm sees its future in exporting most of itsoutput.

The company expects that the future expansion of the business will be financed using acombination of retained earnings and venture capital from Enterprise Ireland. This funding willallow Alpha to proceed with building a new state-of the art factory that will be among the mostmodern and efficient in Europe.

A site for the new factory has been purchased close to major roads with easy access to a port toaccommodate the steady stream of trucks coming to and from the factory. However, beforeconstruction can proceed, an environmental impact statement will have to be completed beforeplanning permission can be secured

1. Analyse the impact that changes in government tax and expenditure can have on the successof Alpha Systems. Use examples to support your answer. (30 marks)Comment: Make 6 points @ 5 marks each. Students should refer to the ABQ in their answer. Possible pointsa student can make to answer this question include:

Changes in government taxes• Sales: High PAYE income taxes reduce the amount of disposable income available to consumers,

thus reducing overall demand in the economy. This can depress Alpha’s sales. By increasing the price of goods, VAT can also discourage consumer from purchasing goods.

• Costs: High PAYE taxes can encourage workers to look for higher wages, thereby increasing Alpha’s labour costs. High employers’ PRSI increases the costs for Alpha of employing staff and is effectively a tax on employment. High corporation taxes reduce the amount of profit for entrepreneurs like Brian Loughrey. They also reduce the amount of money that can be reinvested in the business. High corporation taxes in Ireland could force businesses to locate in lower tax countries. Costs are also incurred as businesses like Alpha Systems have to carry the financial and administrative burden of collecting VAT, PAYE and other taxes for the Revenue Commissioners.

• Business confidence: High taxes can erode business confidence and discourage expansion. High corporation tax reduces the amount of profits that Alpha Systems can earn, thereby discouraging business activity, enterprise and risk taking.

Changes in government expenditure• Sales: Generally, the more money the government spends, then the more money there will be

circulating in the economy. This means more money is available to consumers, which will boost the overall level of economic activity and business sales for businesses like Alpha.

• Costs: Government expenditure on infrastructure and services for businesses can reduce business

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costs. However government spending that is considered wasteful or not necessary, must ultimately be financed by taxation, including taxes on Alpha and other businesses.

• Business Confidence: If government spending is perceived to be well managed and without the need for increased taxes, business confidence in the future is enhanced.

However, if government spending is seen as excessive or wasteful, then this could undermineAlpha’s confidence. If the government is borrowing large sums to finance its spending, then thisgovernment debt will ultimately have to be repaid. Reducing large government debts can usuallyonly be done by reducing government spending and / or increased taxes in the future.

2. Discuss the steps the government takes to make it more attractive for Irish entrepreneurs likeBrian Loughrey to start-up new businesses in Ireland. (30 marks)Comment: Make 6 points @ 5 marks each. This is a very broad and challenging question. Students shouldremember to make their answer relevant to the ABQ. Possible points a student can make to answer thisquestion include:

• To encourage enterprise, governments try to set business and personal taxes at an appropriate rate to encourage work and enterprise and business expansion while also raising enough revenue to pay for State services.

• To encourage enterprise, governments try to keep down VAT and other taxes on the sale of goods and services.

• To encourage enterprises like Alpha, governments invest in infrastructure development such as transport networks, water, sewerage and other essential services. Infrastructure refers to the basic network of supports needed for economic activity such as road, rail, sea and air links, waste disposal and water systems.

• To encourage entrepreneurs like Brian Loughrey, governments need to keep control of public spending since excessive spending may have to be paid for through higher taxes later.

• To encourage enterprise, governments provide grants and other supports to encourage business start-ups and expansion.

• Government provides education and training to help people to become more employable or entrepreneurial. This is done through funding schools, colleges and universities and also state agencies such as Enterprise Ireland and the County Enterprise Boards.

• To encourage enterprise, governments try to introduce laws that provide clear rules and regulations for the conduct of business that also protect the good of society and the environment.

• However the government also needs to control the number and complexity of the laws and regulations with which entrepreneurs and businesses have to comply (e.g. employment and industrial relations law, consumer protection law, data protection, competition law, company law and environmental protection.)

• Government can argue at EU level for more European support for entrepreneurs and businesses.

3. Contrast the role of Enterprise Ireland and IDA Ireland in encouraging business development.(20 marks)Comment: Make 4 points @ 5 marks each. A maximum of 10 marks are available for Enterprise Ireland and10 marks for County Enterprise Boards. Students are being asked to ‘Contrast’ the roles, so the answer shouldconcentrate on the differences between the organisations. Possible points a student can make to answer thisquestion include:

• County Enterprise Boards (CEBs) are locally based state agencies responsible for assisting entrepreneurs who want to start up small business and create employment in their own city or county.

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• The board of every CEB represents a partnership between various local stakeholders, including local businesses, voluntary groups, trade unions, state agencies and elected public representatives.

• CEBs only provide small grants • CEBs only deal with small, non-exporting businesses#• CEBs only operate offices within Ireland

• Enterprise Ireland (EI) is the state agency responsible for assisting Irish-owned firms like Alpha Systems to grow and expand by exporting internationally.

• Unlike county enterprise boards, EI concentrates on firms who are focussed on export markets. • Do not deal with new enterprise start-ups unless they are judged to clearly have high growth

potential. • EI operates an international network of offices • Assists Irish firms to compete in the global market by providing market research information

on foreign markets.• Assisting with international advertising and promotions and setting up international

distribution channels.• Provides translation services.• Providing advice on dealing with export regulations and documentation, methods of

international payment and how to minimise foreign exchange risks.• Can provide large financial support (e.g. grants and venture capital investment) to export-

oriented firms.• Most entrepreneurs with an idea, like Brian Loughrey, will approach their local County

Enterprise board initially. Once the enterprise becomes established and is ready to consider entering export markets, then Enterprise Ireland will become a more suitable source of support.

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23. Ireland & the Global EconomySlievemore Cheese CompanyThe Slievemore Cheese Company is an agribusiness firm producing high-quality cheese products.Currently, all of the firm's sales are in Ireland. However, Lynn Keogh, the firm’s managing director,feels that sales in Ireland have reached maturity and that continued business growth will have tocome from export markets.

Lynn instructed Slievemore’s marketing manager to prepare a market research report on possibleforeign market opportunities. The report has now been completed and has identified a number oflarge supermarket chains in the UK, France and Russia who may be interested in stocking the firm’sproducts. However the report pointed out that marketing staff in the firm have very poor foreignlanguage skills. The firm is also highly geared and cannot afford to invest large sums trying to buildup sales in a foreign market.

International trade has its risks and Lynn is keen to tackle just one foreign market initially. However,she is unsure about what country to select first. The UK is English-speaking, France is in the Eurozonewhile Russia has the largest potential population.

Lynn has heard lots of stories of big companies who have made expensive mistakes when tryingto sell goods to foreign countries. She is therefore keen to get advice from Enterprise Ireland abouthow to successfully manage the move into export markets.

1. Evaluate the main opportunities open to Slievemore for engaging in international trade. (20marks)Comment: Make 4 points @ 5 marks each. Students should remember to make their answer relevant to theABQ. Possible points a student can make to answer this question include:

• Access to raw materials: Free trade allows Slievemore to import raw materials (e.g. olive oil) and essential finished goods (e.g. cheese making machinery) which may not be available in Ireland but are needed by them to operate.

• Increase sales: The absence of government barriers to trade within the EU can allow firms like Slievemore to expand sales beyond the domestic market. If Slievemore wants to expand seriously, they must look to foreign markets to increase sales and profits. As members of the EU, France and the UK will be easier markets to enter than Russia.

• Survival and growth: By helping Slievemore to grow, exports can help it to attain gain economies of scale, such as lower per-unit costs and prices for its cheese products. Economies of scale are benefits that arise in a business as it becomes larger and more efficient. For instance, it can mean being able to use mass production methods, employ specialist personnel and achieve greater efficiencies in advertising, transport and marketing. Such economies help to reduce the average cost of each item produced and thus more competitive prices can be charged, leading to increased sales and higher profits. This improves Slievemore’s ability to compete and survive against multinational rivals.

• Spreads business risk: Selling to foreign markets serves to spread a Slievemore’s business risk by reducing its reliance on any one single market. If sales in the Irish market went into decline or became too competitive, Slievemore may be able to use its foreign sales to compensate and protect the business.

2. Analyse the possible barriers to trade that Slievemore could encounter when trying to enternew export markets. Refer to the text in your answer. (40 marks)Comment: Make 8 points @ 5 marks each. Students should remember to make their answer relevant to theABQ. Wherever possible, students should refer to the ABQ in their answer. Possible barriers to trade thatSlievemore could encounter when trying to enter new export markets include the following:

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Ireland & the Global Economy Chapter 23

• Competition: Slievemore will need to be able to operate very competitively and to the highest international standards if it enters the global marketplace. It should aim for the relevant international quality standards or higher, adopt management practices such as TQM and encourage worker empowerment.

• High cost base: Given Ireland's geographical location on the periphery of Europe, Slievemore will suffer from higher transport costs selling abroad than many of its foreign rivals – especially to distant markets such as Russia. Ireland also has very high labour costs. Slievemore must operate as efficiently as possible to ensure that other costs are kept to a minimum level. It also means using marketing strategies based on innovative product design, high quality, attractive branding or after-sales-service, rather than price.

• Language: Slievemore staff have very poor foreign language skills. Language differences in France and Russia will create difficulties for Slievemore when conducting market research, designing packaging and promotions, choosing brand names and negotiating contracts.

• Customs and Culture: Different countries have different age profiles, physiques, tastes and fashions compared to those in Ireland. Slievemore will need to be aware of these.

• Slievemore product ingredients, designs and standards may need to be adapted to suit the food safety laws and regulations of foreign markets. Within the EU, many products are now standardised. However, outside of the EU, there are many different variations that may need to be considered.

• Political risks and instability: Wars, terrorism, organised crime and general political instability in a foreign market will make business more difficult. Goods may be damaged or stolen, bribes may have to be paid and the lives of staff may be put at risk. In this respect, Russia would be a riskier market for Slievemore compared to the UK or France. Insurance premiums for business conducted in such countries will be high.

• Payment difficulties: Slievemore needs to be aware that collecting debts from customers in other countries is more difficult than at home, especially if they are far away or have a very different culture or legal system.

• Exchange Rates: Slievemore needs to be aware that France shares the same currency – the Euro – as Ireland. However, the UK and Russia have different currencies. Difficulties can be caused by fluctuations in exchange rates for different currencies. Exchange rates are the price of one currency expressed in terms of another currency.

3. Describe the possible role of Enterprise Ireland in assisting Slievemore as it prepares to tradeinternationally. (20 marks)Comment: Make 4 points @ 5 marks each. Students should remember to make their answer relevant to theABQ. Wherever possible, students should refer to the ABQ in their answer. Possible points a student can maketo answer this question include:

• Enterprise Ireland is the state agency responsible for assisting Irish-owned firms to grow and expand by exporting internationally. Using its international network of offices, Enterprise Ireland can assist the Slievemore Cheese Company with:

• Gathering market research information on the UK, France and Russian markets;• Setting up international distribution channels.• Provides a translation services to assist businesses understand foreign market regulations,

redesign product packaging, negotiate distribution agreements and design advertising for the export market.

• Assistance with international advertising and promotions.• Advice on dealing with export regulations and documentation, methods of international

payment and how to minimise foreign exchange risks.• Grants and venture capital investment to finance the investment in extra production equipment

and putting together of new marketing mix for the export market.

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24. Ireland & the European Union NatureVite HealthcareNatureVite Healthcare Ltd was started by Eugene Redmond when he identified a niche in the marketfor an Irish producer of natural vitamin and mineral supplements. ‘The Irish market was dominatedby brands from other EU countries,’ according to Eugene, who studied biochemistry in university.‘After conducting some market research I knew there was room in the vitamins market for a qualityIrish product.’ So, with help from Enterprise Ireland, he set up his own business.

NatureVite Healthcare began by selling to small grocery stores and pharmacies before persuadingthe big supermarkets to stock their products. The company now supplies all the leading Irishsupermarkets. The company does all its own R&D, manufacturing, quality control, marketing,distribution and package design.

Eugene emphasises the importance of good product packaging. ‘In this market I think using brightcolours and a distinctive design is important to give our company's products a definite sense ofidentity and vibrancy.’ NatureVite now has a sales turnover of nearly €15 million, a staff of 100 andover 50 different products ranging from vitamin and mineral food supplements to skin-care andbaby-care products.

NatureVite is a member of a healthcare trade association that represents the interests of all the Irishfirms in this industry. Changes to EU laws regarding permitted ingredients and labelling are havinga big impact on the vitamin and supplement market and Eugene is concerned about the possiblenegative implications for his business of some of the changes proposed by the EuropeanCommission.

Sales in the Irish market are now beginning to level out and Eugene is aware that the firm willneed to look abroad for new markets and business opportunities. He is particularly keen forNatureVite to take advantage of the opportunities offered by the EU’s Single European Market. Heis considering targeting France and the UK initially.

1. Compare the challenges NatureVite Healthcare will face in exporting to Britain compared toFrance. (30 marks) Comment: Make 6 points @ 5 marks each. This is a tough question. Students need to concentrate oncomparing the challenges, not the similarities. Students should remember to make their answer relevant to theABQ. Possible points a student can make to answer this question include:

• Both France and the UK are members of the EU. This means that Nature Vite will be able to use the Single European Market to access these markets.

• Competition: Nature Vite will need to be able to operate very competitively and to the highest international standards in both France and the UK. Nature Vite should aim for the relevant international quality standards or higher.

• High cost base: Given Ireland's geographical location on the periphery of Europe, Nature Vite will suffer from higher transport costs selling abroad than French or British rivals.

• Since Ireland also has very high labour costs, Nature Vite must operate as efficiently as possible to ensure that other costs are kept to a minimum level. When exporting to both UK and France, NatureVite will need to use marketing strategies based on innovative product design, high quality, attractive branding or after-sales-service, rather than price.

• Nature Vite product ingredients, designs and standards will already meet EU requirements which will be same in Ireland as in the UK and France.

• Payment difficulties: Nature Vite need to be aware that collecting debts from customers in other countries is more difficult than at home, especially if they are far away or have a very different culture or legal system.

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2. Explain how NatureVite’s trade association could influence EU decision-making. Refer to themain EU decision-making bodies in your answer. (30 marks)Comment: Make 6 points @ 5 marks each. This is a tough question. Students need to concentrate oncomparing the challenges, not the similarities. Students should remember to make their answer relevant to theABQ. Possible points a student can make to answer this question include:

• EU decision-making involves three key bodies. The Council of the European Union is the EU’s most important decision-making body. It is made up of representatives from each Member State Government. Its meetings are attended by the relevant national Ministers for the topic being discussed e.g. if foreign policy is to be discussed, the Foreign Affairs Minister from each country will attend.

• The European Commission is the institution responsible for the day-to-day management of the European Union. The main functions of the European Commission include proposing new laws and supervising Member States to ensure all EU legislation is fully implemented.

• The European Parliament is directly elected by EU citizens to act as a supervisory ‘watchdog’ over all aspects of the EU’s activities. The European Parliament debates and votes on all new policies and laws proposed by the Commission. Without the Parliament's approval, proposals cannot become law.

• Interest groups, such as NatureVite’s trade association, can influence EU decision-making by lobbying the relevant decision-makers on the European Council, Commissioners and MEPs. Lobbying refers to a deliberate effort to influence decision-making by promoting a particular point of view.

• The trade association could set up an office in Brussels to make lobbying easier. They can also monitor all relevant EU developments and to stay close to the decision-making process.

• The trade association could use public relations and other information campaigns can help to publicise an interest group’s views on permitted ingredients and labelling in order to win over public opinion and, hopefully, influence the decision-makers.

• The trade association could use some form of protests and public demonstrations to attract media attention and get publicity for their views.

3. Evaluate the potential implications for NatureVite of two EU policies. (20 marks)Comment: Make 4 points @ 5 marks each Using EMU and Competition Policy, possible points a student canmake to answer this question include:

• European Monetary Union (EMU) refers to the use of the Euro as a common currency for members of the EU’s ‘Eurozone’.

• NatureVite’s export sales benefit as payments within the Euro-zone become simpler, cheaper and free from exchange rate risk.

• EMU also eliminates NatureVite’s need to pay bank charges for changing currencies between Eurozone members (because they are using the Euro as the common currency).

• The European Central Bank is responsible for managing the Euro currency and has as its priority keeping inflation and interest rates low. Low inflation rates make business planning easier. Low interest rates make it cheaper for firms like NatureVite to borrow money.

• By reducing international business costs and encouraging investment, the Euro is intended to stimulate economic growth and promote business and economic activity generally within the Eurozone area.

Or • EU Competition Policy sets out rules designed to ensure free and fair competition between

firms in the Single European Market.

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• As a small Irish firm, EU Competition policy assists NatureVite as firms are not allowed to form anti-competitive cartels to fix prices, share markets, or block new firms from entering the market. Firms found guilty by the EU Commission can be subject to large fines.

• Dominant firms in a market are not allowed to use their power to increase consumer prices, restrict the growth of smaller firms or prevent new firms like NatureVite entering the market.

• Governments are prohibited from giving special aid, such as subsidies, to firms if this is likely to give such firms an unfair advantage over their European competitors.

• Take-overs and mergers among firms can result in dominant or monopoly market positions. The EU has the power to prevent large take-overs and mergers going ahead if it believes they will damage free competition. As a relatively small firm, this can help protect NatureVite against unfair competition from larger firms.

Or • The EU’s Single European Market Policy removes barriers to the free movement of goods,

services, people and capital between member states. It is intended to boost free trade within the Union by allowing businesses to treat the entire EU as their home market.

• The EU has a market of hundreds of millions of consumers. It provides NatureVite Healthcare with access to the largest single free market in the world.

• By selling into a larger market, NatureVite can develop economies of scale. Economies of scale are benefits that arise in a business as it becomes larger and more efficient.

• NatureVite can become less dependent on the domestic market for sales. This helps to diversify the spread of customers and reduces NatureVite’s business risk.

• Tariffs on imports from outside the EU make imports of vitamin products from outside less competitive. This helps to protect NatureVite (and other EU) businesses from low cist competition from, say, China or India.

• Workers can freely move around the EU without any need for visas or work permits. This internal migration helps to reduce the cost of labour for firms like NatureVite.

• However, the Single European Market means increased competition from rival European firms for NatureVite. If NatureVite is uncompetitive, then they will be driven out of business.

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25. Global Business Soft Tech, MediWorld and CottonlandSoft Tech is a transnational firm employing hundreds of highly skilled employees in an industrialestate located outside a small town on the banks of the Shannon. Since setting up in Ireland it hassigned contracts with many local firms to supply goods such as computers, stationery, packaging,food and services such as cleaning, security and insurance services. Every year it also pumps millionsin wages into the local economy, which further benefits many local enterprises. As a result, the townis a thriving and prosperous place.

However, a downturn in the global economy and increasing low-cost competition from Asia meansthat Soft Tech’s head office in the USA is considering relocating the factory to India where labour costsare a fraction of the costs in Ireland.

At the same time in a nearby town, MediWorld, a local indigenous firm producing medicalequipment, is looking at a more exciting future. With help from Enterprise Ireland and linkages withthe local Institute of Technology, it has successfully developed a new life-saving product that it expectswill be in huge demand by hospitals and doctors worldwide. The company is very excited about thisdevelopment and is preparing a global marketing plan to ensure it becomes a success

However, the news is not so good at Cottonland, an indigenous clothing company in the sametown. Despite having award-winning fashion designs, this long established local firm has beenstruggling to survive in recent years due to low-cost competition from foreign firms. The latest salesfigures are very poor and the board of directors are meeting to discuss the future of the business.

1. Discuss the factors that the management of SoftTech will consider when deciding the futureof their Irish operations within a global context. (30 marks)Comment: Make 6 points @ 5 marks each. There are many points a student can make here. Possible pointsa student can make to answer this question include:

• SoftTech is a transnational corporation. Transnational corporations (TNCs) are firms which produce and market goods in more than one country, such as Microsoft, McDonald's, Johnson & Johnson, Ford and Toyota.

• TNCs make their decisions on the basis of the most profitable global location. This means that SoftTech will relocate their operations if they see a more profitable location elsewhere in the globe. This profitability is affected by local tax rates, labour and other costs.

• Ireland has relatively low rate of corporation tax. This has attracted many TNCs to locate here. If it is going to relocate, SoftTech will want to consider whether the corporation tax rates available in other countries are as attractive to make moving worthwhile.

• Labour costs in Ireland are amongst the highest in the world. SoftTech will want to consider the availability and cost of hiring similarly skilled labour in other countries.

• Before deciding to relocate, SoftTech will also consider the general ease of doing business in Ireland compared to other countries. For example, transport and communications infrastructure, the level of economic development, laws and regulations, corruption, political instability.

• SoftTech will also consider the impact that relocating will have on its ability to continue selling its goods in its target markets. For instance, if SoftTech are targeting the European market, relocating to a country outside of the EU like India means that a tariff (tax) will be levied on goods exported to Europe. This may make SoftTech less competitive in the European market.

2. Analyse how a global marketing mix can assist MediWorld in successfully launching their newproduct. (20 marks)Comment: Make 4 points @ 5 marks each. Students should remember to make their answer relevant to theABQ. Possible points a student can make to answer this question include:

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• Global marketing means marketing a product globally with broadly the same marketing mix, as though the world were a single marketplace. Global companies, such as Ford, Pepsi Cola and Nissan, brand their products with a common global image and global marketing mix.

• Having a global marketing mix means MediWorld’s product, price, distribution and promotions strategies can be used globally with only minor adjustments for different countries. This can result in considerable cost savings for MediWorld.

• A global marketing mix can also help MediWorld to build a global brand name and strong consumer loyalty to the brand.

• A standardised global marketing mix would mean MediWorld using the same mix in different countries. This approach is used by Coca Cola and Microsoft.

• However, to ensure commercial success, MediWorld may have to take account of local market conditions and make some adjustments to their marketing strategy for each country. An adapted global marketing mix means adjusting the mix to take account of cultural, geographic, economic and other differences in different countries.

For MediWorld, a global marketing mix could involve the following elements:• Global Product: MediWorld could offer a standardised product to all customers regardless of the

country they are in but with a distinct USP (unique selling point) that will appeal to a global audience.

• Sometimes a standard design, packaging and brand name may not be suitable due to differences in language, laws, culture or lifestyles. Local regulations may prohibit certain ingredients or packaging. Brand names may need to be adapted to avoid confusion. Local geographic conditions such as climate can influence product design.

• Global Price: Despite having a standardised product design, MediWorld prices may still vary from country to country because of differences in local profit margins earned by distributors, differences in import duties / tariffs, different rates of sales taxes.

• Local country prices may also have to differ due to different distances and transport costs involved in getting to the local market, adjustments that may have to be made to a product to comply with local laws or culture or different pricing strategies may be needed to gain sales in a country.

• Global Distribution / Place: Global channel of distribution tends to be longer and more complex given the many different countries that may be involved. MediWorld may decide to sell direct to customers without going through any middlemen.

• MediWorld may use agents to sell the goods locally. An agent is an independent person or firm who will sell the goods in the target market in return for a commission on every sale. Many garages, for example, act as agents for different brands of cars.

• MediWorld may use an export trading house to handle the distribution in specific countries. An export trading house is a company that buys goods in one country and then, like an international merchant, resells the goods at a profit in another country.

• MediWorld may enter into a foreign licensing agreement with a local firm. A foreign licensing arrangement is a deal that gives permission to a local firm to manufacture or distribute your goods or services, or to use your brand name. In return the global business receives a commission on sales.

• MediWorld may enter into a joint venture agreement. To spread the risk in a local market, a company can form a distribution joint venture with a local business that better understands the local market.

• MediWorld may set up a foreign subsidiary: A business could decide to go it alone and set up its own fully owned subsidiary company in the target country to manage the distribution of the goods. Depending on how big the market is, some global companies may go even further and set up a manufacturing plant in the country concerned.

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• Global Promotion: Instead of MediWorld designing different campaigns for each country, one standardised global promotion campaign can be implemented. This can then be recycled from one country to another at very little extra costs.

• Promoting goods globally can also include attending trade fairs, participating in trade missions and using the Internet.

3. Evaluate the challenges facing Irish industry within a globalised business environment. Referto the case in your answer. (30 marks)Comment: Make 6 points @ 5 marks each. Students should note that the language of the question refers toIrish industry rather than business. Student should reflect this language in their answers. Students shouldremember to make their answer relevant to the ABQ. Possible points a student can make to answer thisquestion include:

• Globalisation refers to the emergence of the world as one interconnected market place. Decisions or events in one part of the world can now quickly affect people in other parts of the globe. To survive and fully avail of the opportunities presented by the global marketplace, Irish industry must successfully face a number of challenges. These include the following:

• Competition: The globalisation of business means Irish industry needs to be able to operate competitively to the highest international standards. Firms should aim for the relevant quality standards or higher, adopt management practices such as TQM and encourage worker empowerment.

• High cost base: Given Ireland's geographical location on the periphery of Europe, we suffer from higher transport costs than most other EU firms doing business in Europe. We also have very high labour costs. This means Irish industry must operate as efficiently as possible to ensure that other costs are kept to a minimum level. It can also mean using marketing strategies based on innovative product design, high quality, attractive branding or after-sales-service, rather than price.

• Poor transport infrastructure such as the lack of motorways or high-speed rail links to major cities, ports and airports makes transport in Ireland costly and slow. Irish governments have recognised this weakness and are investing in bringing the transport infrastructure up to internationally competitive levels.

• Language: Language differences create many difficulties when conducting market research, designing packaging and promotions, choosing brand names and negotiating contracts. To sell successfully to foreign customers, Irish industry need able to speak their language.

• Customs and Culture: Different countries have different age profiles, physiques, tastes and fashions compared to those in Ireland. The physical stature of different populations can also influence the types of products that Irish industry will sell best.

• Product designs and standards may need to be adapted to suit the safety laws and regulations of foreign markets. Within the EU, many products are now standardised. However, outside of the EU, there are many different variations that may need to be considered by Irish industry.

• Economies of scale: Because the Irish market is small, Irish firms tend to be small by international standards. This makes it very difficult to develop the economies of scale needed to compete against larger firms producing mass-market products, such as cars, soft drinks or TVs. It therefore makes sense for Irish industry to concentrate their attention on filling niches in the global market place.

• Geographical differences: Different climates around the world mean that many products must be adapted before they can be successfully exported by Irish industry.

• Political risks and instability: Wars, terrorism, organised crime and general political instability in a foreign market will make business more difficult. Goods may be damaged or stolen, bribes may have to be paid and the lives of staff may be put at risk. Insurance premiums for business conducted by Irish industries in such countries will be high.

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• Payment difficulties: Collecting debts from customers in other countries is more difficult for Irish industries than at home. This is especially true if they are far away or have a very different culture or legal system.

• Exchange Rates: Further difficulties can be caused by fluctuations in exchange rates for different currencies. Exchange rates are the price of one currency expressed in terms of another currency. The European Union introduced the Euro as an international currency to eliminate such exchange rate difficulties between members of the EU.

• Despite these challenges, Irish industries have many advantages. These include Ireland’s membership of the EU, relatively high levels of education, being able to speak English (the international business language).

• However, all Irish industries must learn to accept the need for constant change and adaptation in the globalised business environment.

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