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ANSWERSANSWERS*Please note: questions without answers are ‘open’ anddesigned for group or class activities.CHAPTER 1CASE STUDY: THE KANDY CYCLE SHOP1 Why do you think Tharanga opened a second-handbicycle shop?Tharanga had always wanted to run a business becausehe wanted to be his own boss. He also had a passion forbicycles and spent a lot of his spare time restoring oldbicycles and selling them on to local people as a hobby.He probably felt he could make a living by exploiting thishobby. He may also have been motivated by the prospectof making some money.2 What are three resources used by Tharanga whensetting up his business?Tharanga when setting up his business used a rangeof resources. For example, he needed premises, toolsand equipment, such as spanners, pliers, screwdriversand wrenches, spare bicycle parts, lubricants, businessstationery, electricity and a mobile telephone. He alsoemployed his younger brother as a shop assistant.3 Why do you think businesses exist?Businesses exist to provide goods or services. In thisexample, Tharanga sold second-hand bicycles and carriedout a repair and maintenance service for bicycle owners. Inthe private sector these goods and services are sold in thehope that a profit is made for the business owners.ACTIVITY 1CASE STUDY: GULF CONFECTIONERY AND BISCUIT CO.1 Does the Gulf Confectionery and Biscuit Co. supplyproducts that satisfy needs or wants?The Gulf Confectionery and Biscuit Co. manufactureshigh-quality toffees, sweets and lollies. These productsare designed to meet consumers’ wants, not their needs.They are non-essential products. They are not required forhuman survival. People can live without toffees, sweets andlollies, so they are not designed to meet their needs.2 The Gulf Confectionery and Biscuit Co. is a privateenterprise. What does this mean?Individuals or groups of individuals own most businessesprivately. They are private sector businesses. The GulfConfectionery and Biscuit Co. is a private enterprise thatmakes toffees, sweets and lollies. The owners hope that thebusiness is successful and is able to make a profit.ACTIVITY 2CASE STUDY: STAKEHOLDERS1 What is meant by the term business stakeholder?A stakeholder is an individual or a group that has an interestin the operation of a business. Some stakeholders, such asowners, have a financial interest in the business.12 Name the two groups of stakeholders in thephotograph.Customers and employees are the two groups ofstakeholders in the photograph.3 The goods sold in the store above are bought fromsuppliers. What are the possible needs of suppliers?Businesses that provide raw materials, parts, commercialservices and utilities to other businesses are calledsuppliers. In this case, suppliers provide the store withthe stock that is sold on to consumers. Relations betweenbusinesses and their suppliers must be good because theyrely on each other. Businesses want good quality resourcesat reasonable prices. In return suppliers will require promptpayment and regular orders. If suppliers do not receiveprompt payment from their customers, this may cause themproblems. For example, they may not have enough moneyto pay their own bills.MULTIPLE-CHOICE QUESTIONS1C, 2C, 3B, 4ACHAPTER REVIEWCASE STUDY: JCB1 JCB makes producer goods. What is meant by the termproducer goods?Products sold by one business to another are calledproducer goods. JCB designs and manufactures a widerange of machinery for the construction industry. These areproducer goods because they are sold to other businesses,not consumers.2 What is meant by the term private sector?Business organisations owned by individuals or groups ofindividuals operate in the private sector.3 Name two possible stakeholders in JCB.Any two from: shareholders, suppliers, employees,customers, the local community or the government.4 Describe the role played by managers in a businesssuch as JCB.Managers help with the running of a business. Theyare often employed to run the different departments inbusinesses such as marketing, production, finance andhuman resources. Managers have to show leadership, solveproblems, make decisions, settle disputes and motivateworkers. Managers are likely to help plan the direction ofthe business with its owners. They also have to controlresources, such as finance, equipment, time and people.Managers are also accountable to the owners. This meansthey have to take responsibility if things go wrong.5 JCB operates in a changing business environment.What does this mean?Most businesses operate in a changing businessenvironment. This means that they may be affected byexternal factors that are likely to change over time. Suchfactors include the strength of competition, the economicclimate, government legislation, population trends, demandpatterns, world affairs and social factors. In this case, JCB

2ANSWERSmight be affected by a decline in the construction industry,for example. This might happen if there is a recession or areduction in government expenditure on building projects. Tosurvive, businesses such as JCB must produce goods andservices that satisfy customer needs. They must have clearobjectives and recognise that the changing environment canbring both new opportunities and impose limitations.6 Assess whether the owners of JCB would be happy withthe financial performance of the business between 2011and 2014.The owners of most businesses hope to make a profit.This is one of the main reasons why people get involvedin business ownership – they hope to make some money.In this case, the graph in Figure 1.2 shows that JCB sawprofits fall from 355 million in 2011 to 303 million in2014. This is a 14.6% fall over the time period. Generally,owners would prefer profits to rise over a period of timeas their business grows. However, sometimes this maynot be possible. Businesses may struggle due to internalfactors, such as poor management, or external factors,such as emerging competition or poor trading conditions.In this case, information suggests that the constructionindustry has struggled between 2011 and 2014 in someparts of the world. Consequently, since this is an externalfactor, JCB owners might be fairly satisfied with thefinancial performance of the business. At least it hasn’tstarted to lose money.CHAPTER 2CASE STUDY: MICROMAX1 What are two reasons why Micromax is starting tostruggle?Micromax was a successful company in 2015 where ithad overtaken Samsung as market leader in the sale ofsmartphones in India’s rapidly growing market. However, ayear later the business started to struggle. There were twomain reasons for this: stiff competition from Samsung offeringa new range of cheaper sets and Chinese low cost producersentering the market. The second reason appears to be aninternal problem. Tensions between established managersand new executives are causing conflict and instability. Forexample, it appears that a funding deal fell through whichwas crucial to the development of the company.2 What do you think is the main aim of Micromax at thistime?At the moment, Micromax is struggling to face up to threatsfrom strong rivals in the market. It has also got internalproblems that are damaging the progress of the company.Consequently, it could be argued that the main objectiveof the business at the moment is to survive. If Micromaxcannot overcome the threat from strong competition anddeal with its internal issues, the business may eventually fail.3 What measures might Micromax take in order toachieve this aim?In order to survive in the future, Micromax needs toemploy measures designed to make the business stronger.Industry analysts have suggested that Micromax needs todiversify geographically and develop new products suchas tablets and televisions. This means that it must findnew markets for its products and also develop new ones.Relying only on smartphones is likely to make the businessvulnerable. Micromax has also decided to shift productionof its smartphones from China to India. This might help tocut costs and make the business more profitable. Finally,Micromax needs to sort out its internal problems so thatestablished managers and new executives work togethermore effectively.4 In groups, produce a spider diagram to show thedifferent possible objectives a business might have.Present your ideas to the rest of the class.ACTIVITY 1CASE STUDY: CAIRO FOOD SUPPLIES (CFS)1 What evidence is there to suggest that CFS aims tomaximise profits?The information shown by the graph in Figure 2.1 suggeststhat profit is very important to CFS. Between 2008 and2015 profits have grown from around EGP1110.2 millionto EGP 3901.7 million. This is a huge growth in profits –over 250 per cent during the time period. The companyalso has a strong dividends policy which suggests thatthe shareholders’ value high returns on their investments.Therefore, it is reasonable to conclude that CFS is abusiness that aims to maximise its profits.2 Who is likely to benefit most from such an objective?The profit from business activity belongs to its owners. Inthis case the owners of CFS are the shareholders. SinceCFS has a strong dividends policy the shareholders willbenefit particularly from profit maximisation and the rapidgrowth in profits between 2008 and 2015. However, someemployees may also benefit. For example, senior executivesare likely to get bonuses which are related to profits. Also,profitable businesses can afford to reinvest some of theirprofits to help develop new products. This may benefitconsumers if attractive new products eventually reach themarket.ACTIVITY 2CASE STUDY: DOHA AIRLINE MEALS1 Why is independence and control an importantobjective in this case?Some people want to be ‘their own boss’ – they want tobe in control. This is an important non-financial objectivefor many business owners, such as Omar Hassan. Theseentrepreneurs are driven by the desire to be independentand to take control of their own futures. The freedom tomake all the decisions when running a business is veryappealing. Some people often resent being told what to doat work. Omar was employed by a large hotel working inthe kitchen. However, he did not like following instructionsand being told what to do all day. He set up in businessmainly because he valued independence very highly. Hewanted to take complete control of his life and also thought

ANSWERShe could improve on some of the inflight meals offered byairlines. Omar also had an offer to sell his business – hewould also be kept on as the managing director. However,Omar declined; he wanted to keep control because it wasvery important to him.2 What is meant by a SMART objective? Use informationin this case as an example.SMART business objectives should be Specific. Thismeans that the objective should state clearly what is tryingto be achieved. They should be Measurable, which meansthe outcome must be able to be measured in numbers.They should be Achievable meaning that people involvedshould be able to complete them and Realistic, whichmeans that they can be achieved given the resourcesavailable. Finally, SMART objectives also need to be Timespecific. This means that they state a period of timeto achieve the objective. In this case, DAM set SMARTobjectives in 2015. DAM aimed to increase sales from2.4 million units to 2.8 million units in 12 months.3 Why is it important for objectives to be achievable andrealistic?DAM’s managing director, Omar Hassan, said that thereis no point in setting objectives that are unrealistic andunachievable by staff. In fact, setting unachievableobjectives may have a negative effect on businessperformance. This is because staff might becomedemotivated knowing that a particular objective isimpossible to achieve. Similarly, if there are not enoughresources available to a particular objective, it makes theobjective unrealistic and could discourage workers. In thiscase, Omar said that the key objective was agreed with thesales team. This suggests that the sales objective was bothachievable and realistic. Consequently, the objective shouldhelp to motivate staff to achieve it.MULTIPLE-CHOICE QUESTIONS1B, 2C, 3A, 4DCHAPTER REVIEWCASE STUDY: SUPERSKISWISS.COM1 What is meant by a business objective? Use this caseas an example.The objectives of a business are the goals or targetswhich the business wants to achieve. In this case one ofSuperSkiSwiss.com’s objectives is to grow the business.This is suggested by the fact that the company has grownsales revenue from 0 in 2010 to an estimated 1 543 000 in2017. SuperSkiSwiss.com also aims to be Europe’s numberone online shopping site for skiers. SuperSkiSwiss.comhopes to achieve sales of 3 000 000 by 2020.2 Some businesses have non-financial objectives. Nametwo examples of non-financial business objectives.Examples of non-financial business objectives includesocial objectives, personal satisfaction, challenge andindependence and control.33 Work out the change in sales revenue between 2010and 2017.For this amended question the answer will be: 1 543 000 240 000 1 303 000 100 100 240 000 240 000 542.9 per cent4 Describe one benefit to SuperSkiSwiss.com of salesgrowth.Many owners aim to grow their businesses. This usuallymeans they want to increase sales revenue. It is a commonbusiness objective because growth has a number ofbenefits. For example, as a business grows it will usuallygain a larger market share. As market share growsbusinesses enjoy a higher profile and eventually may beable to have an influence in the market. For example, itmay be able to charge higher prices. Other benefits includelower costs, more profits and more security.5 SuperSkiSwiss.com may be concerned about socialresponsibility. What evidence is there in the case studyto support this view?In recent years a growing number of businesses have beenkeen to improve their social responsibility. For example,SuperSkiSwiss.com appears to consider the needs of theenvironment when makin