PLUSTopic index

of past HSC questions

Past HSC papers and detailed answers

2005–2018

SUCCESS ONE HSCBUSINESSSTUDIES

9781741256XXX SuccessOne HSC Bus Studies 2019.indd 1 7/1/19 8:41 pm

Free-to-download Sample Tests with answers

NSW Education Standards Authority

2018 HIGHER SCHOOL CERTIFICATE EXAMINATION

Business Studies General Instructions

• Reading time – 5 minutes • Working time – 3 hours • Write using black pen • Draw diagrams using pencil • Calculators approved by NESA may be used

Total marks: 100

Section I – 20 marks (pages 2–7) • Attempt Questions 1–20 • Allow about 35 minutes for this section

Section II – 40 marks (pages 9–20) • Attempt Questions 21–24 • Allow about 1 hour and 15 minutes for this section

Section III – 20 marks (page 21) • Attempt Question 25 • Allow about 35 minutes for this section

Section IV – 20 marks (page 22) • Attempt either Question 26 or Question 27 • Allow about 35 minutes for this section

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Section I

20 marks Attempt Questions 1–20 Allow about 35 minutes for this section

Use the multiple-choice answer sheet for Questions 1–20.

1 Sarah works 40 hours per week. Her contract entitles her to sick leave, paid annual leave and superannuation.

What type of employment is this?

A. Casual full-time

B. Casual part-time

C. Permanent full-time

D. Permanent part-time

2 An entrepreneur uses social media to sell make-up to her friends and acquaintances.

What marketing strategy is the entrepreneur using?

A. E-marketing

B. Personal selling

C. Product differentiation

D. Intensive channel choice

3 Phil goes overseas to a photographic equipment trade fair where he sees other businesses using more efficient methods of taking passport photos.

What is this an example of?

A. Process layout

B. Economies of scale

C. Scanning and learning

D. Inventory management

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4 Which of the following is an example of voluntary separation in the workplace?

A. Dismissal

B. Promotion

C. Reinstatement

D. Resignation

5 A landscaping business includes an image of a large purple coloured tree on its website and its vehicles.

Which of the following is the most likely reason for this?

A. Sales promotion

B. Niche marketing

C. Product branding

D. Competitive positioning

6 A cake manufacturer buys more sugar as its production output increases. This enables it to buy the sugar at a lower price per kilogram.

What is this an example of?

A. Logistics

B. Just-in-time

C. Global sourcing

D. Economies of scale

7 In which of the following are both sources of funds appropriate for a business purchasing extra stock before a busy trading period?

A. Debentures and factoring

B. Retained profits and unsecured notes

C. Debentures and bank overdraft

D. Retained profits and bank overdraft

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8 The Fair Work Commission has finalised a dispute between a large business and a union.

Which strategy has been used to resolve this workplace dispute?

A. Mediation

B. Arbitration

C. Negotiation

D. Common law action

9 A soup manufacturer finds it difficult to cope with the increase in demand for soup in winter.

Which performance objective could assist this business to meet the demand?

A. Cost

B. Customisation

C. Dependability

D. Flexibility

10 Which approach is being used when a business creates a focus group to evaluate a product?

A. Marketing

B. Production

C. Selling

D. Standardisation

11 An increasing number of employees are seeking a better work–life balance. As a result, many businesses are adopting job sharing.

This is an example of establishing

A. communication systems in response to a social influence.

B. flexible working conditions in response to a social influence.

C. communication systems in response to an economic influence.

D. flexible working conditions in response to an economic influence.

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12 Kevin is considering investing in a business.

To help Kevin determine which business to invest in, he should consider comparative ratio analysis because

A. cash flow is assessed.

B. market share is determined.

C. similar businesses are evaluated.

D. business sales growth is measured.

13 Sani works for a large manufacturing business. She organises the transport of raw materials and finished products across Australia.

Which of the following describes her area of responsibility?

A. Logistics

B. Service design

C. Global sourcing

D. Leading edge technology

14 Reto

cently a business has removed one of its products from sale because it may contain xic ingredients that could pose a health risk.

What is the most likely influence on this marketing decision?

A. Competitive fairness

B. Product differentiation

C. Government legislation

D. Economic considerations

15 What is a benefit to an Australian clothing company of outsourcing its manufacturing overseas?

A. It can control the production costs.

B. It can lower human resource compliance costs.

C. It can decide which particular employees manufacture its products.

D. It can consider the foreign manufacturer’s workers as its own employees.

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16 Which of the following lists three examples of transformed resources?

A. Customers, information, materials

B. Facilities, information, technology

C. Customers, human resources, materials

D. Facilities, human resources, technology

17 Staff members at VAL’s vegan restaurant wear uniforms with a large letter V on them. They are expected to greet customers with a smile and clean up any spills immediately.

Which element of the marketing strategy are these requirements an example of?

A. Packaging

B. Positioning

C. Promotion mix

D. Physical evidence

18 Australian businesses export to Canada.

What would happen if the value of the Australian dollar increased compared to the Canadian dollar?

A. There would be no effect on Canadian businesses.

B. Australian imports from Canada would become more expensive.

C. Canadian businesses would find Australian products more affordable.

D. Australian products would become more expensive for Canadian businesses.

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Use the following information to answer Questions 19 and 20.

A business provided the following financial information.

Sales $600 000

Owner’s equity $320 000

Accounts receivable $41 000

Cost of goods sold $200 000

Expenses $60 000

Additional information:

• Gross profit ratio = gross profit ÷ sales

• Accounts receivable turnover ratio = sales ÷ accounts receivable

19 What is the gross profit ratio for the business?

A. 53%

B. 67%

C. 78%

D. 90%

20 What is the average number of days the business takes to collect its debts?

A. 15 days

B. 25 days

C. 29 days

D. 30 days

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2018 HIGHER SCHOOL CERTIFICATE EXAMINATION

Centre Number

Business Studies Student Number

Section II Answer Booklet

40 marks Attempt Questions 21–24 Allow about 1 hour and 15 minutes for this section

Instructions • Write your Centre Number and Student Number at the top of this page.

• Answer the questions in the spaces provided. These spacesprovide guidance for the expected length of response.

• Extra writing space is provided at the back of this booklet.If you use this space, clearly indicate which question you areanswering.

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Question 21 (10 marks)

A large business repairs trucks that transport heavy loads. The business struggles to complete many different types of repairs in an efficient manner. It has had difficulty meeting legal regulations and customer expectations.

(a) Describe TWO transformation processes that the business should implement. 4

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(b) Recommend TWO quality management strategies that the business can use to overcome its problems.

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Question 22 (10 marks)

The annual staff survey at a large retail store has revealed that employees areunmotivated and management does not listen to their suggestions and is unwilling to change. Management is concerned that many employees may leave the company and has brought in a consultant to manage change.

(a) Outline the strategic role of human resources in this business.

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(b) Demonstrate how the leadership style of this business has affected employee performance.

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(c) Justify the use of ONE human resource management process to improve the culture of this workplace.

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Question 23 (10 marks)

A manufacturing business has conducted a situational analysis and determined the following:

• It has loyal customers who make repeat purchases.

• The size of the Australian market is shrinking.

• Some staff need further training to use the factory machinery.

• The owner has been invited to invest in similar factories in Europe.

(a) Identify ONE threat to this business. 1

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(b) Why could monitoring and controlling be an important part of the marketinprocess for this business?

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(c) How would the situational analysis change if the business decides to expand into Europe?

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Question 24 (10 marks)

(a) Why is liquidity an objective of financial management? 2

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(c) A business has decided to expand into a larger factory and is now consideriits financial options.

Discuss the use of leasing and the use of mortgages as a source of long-terfinance for this business.

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2018 HIGHER SCHOOL CERTIFICATE EXAMINATION

Business Studies

Section III

20 marks Attempt Question 25 Allow about 35 minutes for this section

Answer the question in the Sections III and IV Writing Booklet. Extra writing booklets are available.

Your answer will be assessed on how well you: ● demonstrate knowledge and understanding relevant to the question ● apply the hypothetical business situation ● communicate using relevant business terminology and concepts ● present a sustained, logical and cohesive response in the form of a business report

Question 25 (20 marks)

Fast Burgers Ltd is a large fast food business that has been operating for 15 years in a market with high levels of competition.

Recently Fast Burgers Ltd has offered its employees an extra day of annual leave in order to participate in charity work. This has been popular among staff, and the business publishes a short summary of these activities on its social media sites. Additionally Fast Burgers Ltd received an award for its services to its staff and to society.

Similar businesses are now adopting this approach, so Fast Burgers Ltd is considering what else can be done to maintain its record as an excellent employer.

Write a report for the directors of Fast Burgers Ltd in which you:

• describe the role of operations management for this business

• demonstrate why corporate social responsibility should remain a key concern in the operation of this business

• recommend THREE human resource strategies that Fast Burgers Ltd could use to maintain its record as an excellent employer.

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Section IV

20 marks Attempt either Question 26 or Question 27 Allow about 35 minutes for this section

Answer the question in the Sections III and IV Writing Booklet. Extra writing booklets are available.

Your answer will be assessed on how well you: ● demonstrate knowledge and understanding relevant to the question ● apply relevant business case study/ studies and contemporary business issues ● communicate using relevant business terminology and concepts ● present a sustained, logical and cohesive response

Question 26 (20 marks)

Explain the influence of global markets on financial management of businesses.

OR

Question 27 (20 marks)

Explain the influence of globalisation on the interaction of price and quality.

End of paper

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2018 HSC Examination PaperSample Answers

(Total 20 marks)Section I Part A

1 C Sarah’s hours of work are full-time and she has the entitlements of a permanent employee.

2 A By using the internet to sell products, she is engaging in e-marketing.

3 C By seeing what other businesses are doing, Phil is scanning the external environment and learning from it.

4 D When someone resigns, they make their own decision to leave the workplace.

5 C By using the same logo on its product, the business is creating a brand that customers will recognise and associate with that business.

6 D Economies of scale means that a business becomes more cost efficient at using resources as it increases its production. Buying bulk sugar at a lower price is an example of a cost efficiency.

7 D The business needs quick access to short-term funds. Retained profits and a short-term loan (an overdraft) provide these funds.

8 B When a third party settles an industrial dispute, the process is called arbitration.

9 D Flexibility means that the business is able to adapt its production processes to meet seasonal changes in such things as customer demand.

10 A By focusing on giving customers the product that they want, the business is taking a marketing approach.

11 B Employees seeking a better work–life balance is a social influence and job-sharing allows greater flexibility in the workplace.

12 C Comparative ratio analysis allows Kevin to assess how his proposed business investment compares to similar businesses.

13 A In business, logistics refers to the movement of products from one place to another.

14 C The government has banned this product from the marketplace (or will ban it in the near future).

15 B The contracting company is responsible for its own employees.

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16 A Customers, information and materials are all resources that have been transformed into something that is of use to the business.

17 D Physical evidence includes the ambience (feel) of a place. It is one of the things that customers judge when they are considering whether to buy from a business or return to shop there. By having neatly dressed and welcoming staff, as well as keeping clean premises, the restaurant has created the physical evidence that will influence loyal diners.

18 D When the Australian dollar increases in value the Canadian business has to swap more Canadian currency to buy Australian dollars to pay for the product; thus the Australian good becomes more expensive in Canada.

19 B Gross profit is calculated by Sales – COGS, or $600 000 – $200 000 = $400 000. Therefore gross profit is $400 000. The gross profit ratio is calculated by dividing gross profit by sales and writing the answer as a percentage:

$400 000$600 000 =

23 or 67%.

20 B Using the formula of sales divided by accounts receivable ($600 000$41 000 ), we have the

answer of 14.63. To find the number of days that it takes to collect these debts, 365 days (one year) has to be divided by 14.63. This gives the answer of 24.95, which rounded up becomes 25 days.

Question 21

(a) Students need to give characteristics and features of TWO transformation features that are relevant to the stimulus.

A sample answer is:

The business needs to develop its transformation processes to provide better service to customers. It can implement the following processes:

(i) Scheduling—a schedule is a plan for carrying out processes and/or procedures, giving lists of intended events and times. For the truck repair business this involves timetabling the events so that parts arrive on time and enough mechanics are employed as needed. Scheduling should include a good customer booking system so that they are not trying to fix too many vehicles at the same time.

Section II Answers

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(ii) Task design—this involves the flow of activities that are needed to complete each job. In designing the tasks that need to be done, management should look at the skills, resources and time needed to complete each job so that the business can complete the tasks in a logical order. As a result the business should be better at meeting time frames. (4 marks)

(b) Students need to provide reasons in favour of TWO quality management strategies that are relevant to solving the problems of the business in the stimulus.

A sample answer is:

Quality management is making sure that the production process results in a quality product. This is important in providing both a good and a service. The management of the truck repair company needs to have better quality management to retain customers. They can do this by implementing the following strategies:

(i) Quality assurance—this is where a set of standards are developed for the business. The aim is to always meet or exceed customer expectations and involves building a culture within the workplace so that every employee strives to produce an output of the highest standard. By doing this the business’s management will ensure that the whole organisation is focused on the goals of the business, which means they will be better at meeting customer needs and also legal requirements.

(ii) Concurrent controls—this takes place while an activity is in progress. It can be used during the repair process with managers checking that things are happening as they are meant to and, if issues occur, rectifying them as soon as possible. If management have carried out scheduling as part of the transformation process, they will be able to check that time frames are being met and see where the glitches in the repairing of the trucks occur. In carrying out concurrent controls, problems should be fixed faster and customer expectations better met. (6 marks)

Question 22

(a) Students need to indicate the main features of the strategic role of human resource management in the business.

A sample answer is:

The strategic role of human resources management is to manage the employee–employer relationship in order to meet the goals of the business. Human resources must work with the business functions to meet its needs. This involves recruiting the most appropriate staff, training and developing them, maintaining them and handling the separation of workers when it occurs. (2 marks)

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(b) Students must show by example (related to the stimulus) how the current leadership style has affected employee performance.

A sample answer is:

The leadership style of this business is based on a classical scientific management model where employees are expected to work because they receive payment to do so. While this may be necessary when staff are unskilled and tight deadlines need to be met, these days employees like to be involved in the way they carry out their job, providing ideas to management about such things as task design. By not listening to employee suggestions, managers have sent the message that they don’t value their workers’ ideas. This in turn has made employees feel they are not valued and hence they become reluctant to offer new ideas. In this way we can see that the leadership style has affected their work performance. (4 marks)

(c) Students need to support an argument for a human resource process that will bring about change in the business referred to in the stimulus.

A sample answer is:

It is important that the owners/senior management change the culture of the workplace. This includes changing the mindset of supervisors and middle management. This could be done by recruiting supervisory staff from within the business. Internal recruitment has the advantage of building staff morale as staff can identify a career path within the business. In addition the business will save on costs as they can advertise internally and the new manager is already familiar with the workplace. Also the new manager(s), promoted from the ranks of employees, will be open to the ideas and suggestions made by the retail store workers. (4 marks)

Question 23

(a) Students need to name a relevant external influence which could have a negative impact on the stated business.

A sample answer is:

One threat facing this business is that the size of the domestic market is becoming smaller, meaning there will be fewer customers to buy the product. (1 mark)

(b) Students need to relate cause and effect of monitoring and controlling the stated business’s marketing plan.

A sample answer is:

Monitoring is where the business compares what is actually happening to what was planned to happen. Control involves taking corrective action so that the business can meet its planned objectives. Monitoring and controlling is important to this business because management needs to regularly check they are on track to meet marketing objectives such as maintaining sales from existing customers. The business has managed

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to create customer loyalty and this is important in a shrinking domestic market. If the proposed international growth alienates these customers, there will be a loss of funds to support the expansion. (3 marks)

(c) Students need to make a prediction based on the available facts about how the situational analysis might change if the business decides to expand into Europe

A sample answer is:

The business’s situational analysis will change as a result of an expansion into overseas markets. For example, strengths will now include greater cashflow into the business from the increased sales; however, the expansion could cause a weakness of solvency issues as the business has to borrow more money to finance the growth. Another weakness for the business is that the expansion will further highlight the issue of untrained staff and, if current customers start to feel neglected, they may start buying their products from other businesses. On the opportunity side, lower interest rates will provide cheaper financing for the expansion. A threat to the business could arise if it neglects its existing customers and a competing business takes advantage of this by offering better deals. (6 marks)

Question 24

(a) Students need to briefly relate cause and effect of a business not focusing on liquidity as a financial objective.

A sample answer is:

Liquidity is a financial objective of a business as it refers to the ability to meet immediate and short-term debts. If a business does not have liquidity, it will not be able to pay its debts on time and thus succeed in its goals. (2 marks)

(b) Students need to put forward ways that a business could improve the management of its accounts receivable turnover.

A sample answer is:

A business must improve the management of its accounts receivable turnover by having a strong credit policy. This policy could include not giving future credit to customers who do not pay within set times. Discounts could be given to customers who pay within a short period of time such as seven days; although this will mean less money, it will guarantee payment and retain customer loyalty. (3 marks)

(c) Students should provide reasons for and against leasing and mortgages in financing larger business premises.

A sample answer is:

The business has considered two options for funding a larger factory. Both of these options have advantages and disadvantages.

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(i) Leasing means that the business is able to have use of the larger building without paying for it outright. Leasing is similar to renting and will require regular payments. Although the business does not own the property, the advantages are that the business is able to use it without paying out a large amount of money upfront, the property will be maintained by the owner and the taxable income of the business will be reduced because lease payments are an expense. The disadvantage is that the building is not a business asset and cannot be used to secure future loans or sold to raise funds.

(ii) Mortgages are loans that are tied to property, usually a building. A mortgage is usually for a large amount of money but has the advantage of being repaid over an extended period of time, usually 10 years or more. The business will need a deposit to get the loan but, as it is secured by property, the lender will charge a lower interest rate than for a shorter loan. If the business does not pay back the loan in the agreed instalments, the lender will take legal action to repossess the property. The disadvantage of a mortgage is that the business must outlay retained profit to get the loan and make regular repayments but the advantage is that the larger factory building will be an asset. (5 marks)

Section III Question 25

Outline of AnswerIn the business-report format, with relevant business terminology, concepts and information, students should present a sustained, logical and cohesive response which demonstrates extensive knowledge and understanding and responds to the hypothetical business situation.

Introduction/Executive summary

Include a short outline of the issues to be considered in the report.

Body

• Provide characteristics and features of the role of operations management for Fast Burgers, including some of the following:

– the strategic role of operations management

– goods and/or services in different industries

– interdependence with other key business functions.

• Show by example what is corporate social responsibility for Fast Burgers, including the following:

– the difference between legal compliance and ethical responsibility

– environmental sustainability and ethical responsibility.

(Total 20 marks)

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• Provide reasons in favour of strategies in human resource management for Fast Burgers, including three of the following:

– leadership style

– job design

– recruitment

– training and development

– performance management

– rewards

– global position

– workplace disputes.

Recommendations/Conclusion

Include a summary of points to be provided to management.

Sample Answer

Introduction

Fast Burgers Ltd (FBL) has been successfully operating in a highly competitive market for 15 years. Through its operations function it has managed to create product differentiation by having production processes that allow for quality burgers that are produced in a reliable amount of time. In addition the human resources department has built a motivated and loyal workforce. Management realises that in order to remain competitive the business needs to make sure that it maintains ethical business practices and has exceptional management of staff. This report will provide advice to the management of FBL on keeping corporate social responsibility as a key concern. It will also make recommendations about strategies that can be used so that the business can maintain its record as an excellent employer.

The role of operations management at FBL

The operations function in any business involves taking inputs and changing them in some way so that the finished product is something customers want to buy. Thus the operations function is concerned with inputs, throughputs and outputs. The operations department in any business transforms business inputs by adding value at each stage of the production process to meet the business goals. The strategic role of operations management is the coordination of this as well as making production decisions for the business which go toward the achievement of the overall business goals in a way that is cost-effective and differentiates the product from its competition. This means the operations manager will have to liaise with the marketing, human resources and finance managers to ensure the product can be made with the human resources and finances that are available and in a place and form that customers are willing to purchase.

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For FBL this has meant that operations management has ensured production processes are such that the business lives up to its name as ‘fast’ as this is one way that the business has created product differentiation, which means to create a point of difference to set your product apart from the competitors. Customers keep coming back to FBL because they get a good quality burger in a reliable amount of time, which has led to its success for 15 years in a competitive market.

More recently the business has faced the problem of increased levels of competition and so has decided to encourage its employees to undertake charity work by giving them a paid day’s leave to do this. The operations, marketing and human resource managers have had to work together to make sure this has had a positive impact on the business. By publishing summaries of these activities on its social media site the marketing department has created another point of difference for FBL. However, the operations manager has had to work with the human resources department to make sure staffing rosters adequately cover the shortfall in workers doing the charity work. Thus it can be seen that in this business one of the important strategic roles of operations management is to interact with the other key business functions.

The importance of corporate social responsibility for management at FBL

Another role of operations management is to be aware of influences that impact the successful running of the business. Corporate social responsibility (CSR) is one of these impacts. While legislation regulates the activities of a business and failure to follow these laws can lead to penalties that range from fines to imprisonment, businesses today are under pressure to behave in an ethical way, which means doing the right thing by owners, employees, the community and the environment, even if it is not a legal requirement. This is important as failure to do so will often lead to a customer looking elsewhere to buy a product. FBL has already shown itself to be an ethical and socially responsible business with its charity work and this has had the advantage of differentiating itself from competitors. However, the business cannot be seen to stop there; CSR needs to remain a focus for FBL in order to reinforce this positive image for existing and future customers and employees.

The business should look at having more environmentally sustainable operations by installing timers that control such things as lighting, thus reducing energy use. It could also use recyclable materials in the packaging of its burgers, using fewer plastics. By doing these things FBL will retain its image as an ethical business. For the operations department, corporate social responsibility is an expensive influence on the production process as processes need to be altered to meet customer expectations in this area. However, it can be seen that, for this business, having CSR as a key concern has led to continued business success and the retaining of keen, focused and loyal workers.

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Human resource strategies for Fast Burger

Retaining staff is important for FBL’s success as fast-food restaurants traditionally have a young staff with a high turnover. By looking after its workforce, the business should be able to reduce the loss of employees and so cut down on recruitment, training and separation costs. It will also increase the relationship between workers and customers, encouraging customer loyalty, which is very important in a competitive market.

In addition FBL has a very good reputation for the way it looks after its employees and has won an award in this area. In order to retain the best workers and customer loyalty, the business needs to maintain and build on this reputation. Thus FBL needs to have appropriate human-resource strategies. These should include job design, performance appraisal and leadership style.

Job design

As FBL already has a very good reputation as an employer that provides flexible work conditions for its employees, it can build on this by including workers in the design of their jobs. Job design is the design of the activities that must be carried out as part of the job. Good job design will include activities that are both relevant and stimulating. The job design is usually decided by management as part of the recruitment process; however, it can be assumed that the design will change over time as such things as technology alter the nature of the job. If management were to include relevant workers in the assessment of their positions and allow them to assist in the reworking of the job design, this would mean that the work would remain appropriate and stimulating. It would also mean that workers remained engaged, enthusiastic and loyal. FBL management should include job rotation in each design as this will provide workers with the chance to carry out other tasks within the business. The advantage for employees is that they are not compelled to do repetitive tasks for hours on end, as can happen in making a burger, and the advantage for the business is that it develops multi-skilled employees. Another advantage is a reduction in the number of workplace accidents which often occur when boring, repetitive tasks are carried out. In addition the employee gets to gain a larger picture of the operation of the business and is able to fill in if a co-worker is absent, an important requirement if FBL’s charity work program is to be successful.

Therefore it can be seen that a safe, motivated worker is of benefit to the business, and low staff turnover and a reduction in the number of workplace accidents will reinforce the image of the business as an employer of choice.

Performance appraisal

One way to include workers in job design is by conducting regular performance appraisals with individual workers. Performance appraisals assess how well an employee is completing their work responsibilities; however, when carried out well, it should be a two-way communication process where the employee is able to discuss their own concerns and career ambitions. As many of its workers are young high-school or university students,

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these discussions will identify when time off is needed for examinations and possible future roles for the student within the organisation. Thus if management has regular performance appraisals with each worker at FBL they will be able to discuss things such as job satisfaction and job design, and future goals can be targeted. As FBL is a large and growing burger chain, identifying the career aspirations of its workers will allow the business to fill skills and manage future gaps in the organisation.

In this way the business will get a reputation in the wider community for caring about the growth of its employees and will not only attract and keep good workers but also expand its reputation as an excellent employer.

Leadership style

For these strategies to work, management must also recognise the need to have the correct leadership style. The business already leans toward a collaborative leadership style where it includes employees in decision-making. This is an unusual approach in the fast-food industry where usually more classical scientific management techniques are used because of young staff and tight deadlines. But FBL has stood out by using a contingency approach to managing staff whereby workers are included in conversations about the need for different management approaches depending on the situation. The success of this approach can be seen in the business being a market leader for 15 years.

By continuing its more democratic approach, workers will know where they fit into the overall workplace picture and FBL is more likely to see continued business success as it will continue to have a harmonious workplace culture where everyone works together to meet deadlines. Having appropriate and regular performance appraisals and including workers in job design will continue and enhance this democratic leadership style. Consequently, the business will continue to see low levels of staff turnover and gain a reputation among the wider community of being an excellent employer.

Recommendations

It is highly recommended that operations management continue to liaise with other departments to build on points of difference for this business. This should include a focus on corporate social responsibility where the business looks at building on its already good reputation by including more environmentally friendly practices in the business. In addition, by reviewing and improving its human resources strategies, FBL will maintain its reputation as an excellent employer.

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Section IV Question 26

Outline of AnswerThis response could be in either extended-response format or business-report format. It needs to contain relevant theory, illustrated by a relevant case study or studies, using relevant business terminology and concepts. These can be integrated throughout the response or stand alone after the theory is explained.

To gain the maximum range of marks the response must present a sustained, logical and cohesive response and communicate clearly using relevant business terminology and concepts.

It must also show clearly the relationship between global market influences and financial management. It should include some or all of the following ‘learn about’ Finance topic syllabus points for key influences: • global market influences—economic outlook• availability of funds• interest rates.

Sample AnswerIntroduction

Financial management is the location and management of the funds that are necessary to meet the short-, medium- and long-term goals of the business. Business managers often scan the international horizon to see what opportunities it can provide for meeting the organisation’s financial objectives of liquidity, profitability, growth, efficiency and solvency. The global economy has had an impact on many areas of business, including the provision of a greater number of opportunities for businesses to source funds and sell products to more customers. In order to successfully take advantage of these opportunities, managers need to consider the economic outlook and the availability of funds and interest rates in both Australian and international markets. The Cotton On Group is a business that has successfully expanded by looking at these factors.

Influence of global markets—availability of funds, economic outlook and interest rates

Increased globalisation has meant that financial managers in businesses have been able to scan the global environment to gain the finances needed in order to meet the financial goals of liquidity, profitability, efficiency, solvency and growth. The availability of funds means the ease with which a business can gain access to finance in international markets. Globalisation and a relaxation of restrictions has meant that Australian businesses have been able to source funds from international providers and so have increased access to finance.

This increased number of providers has reduced the cost of finance for many businesses but can lead to greater long-term expense if management does not carry out enough research. Thus the success of sourcing global funds can rely on the economic outlook of the international economy. Financial management will have to decide if the world economy, or that of the credit provider’s country, will be doing well or doing badly in the future.

(Total 20 marks)

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Moreover the global economy has led to greater interdependence between countries which means that any downtowns or upswings in the economies of Australia’s trading partners will affect the Australian economy and thus Australian businesses, and so it is important that management considers these risks when making decisions about business growth and how to fund it.

When businesses source their finance from non-Australian lenders, they face certain issues. One of these issues is the fluctuation of the Australian and global economies, and the effect this has on exchange rates. The rate of exchange is the number of Australian dollars that have to be swapped for the foreign currency of the lender. This rate will influence the decision on how much to borrow. The better the Australian exchange rate, the more money that can be borrowed. If the Australian economic outlook is good then the Australian dollar will be strong against other currencies and so Australian borrowers are in a good position to pay back their loans. However, if the Australian economy is not performing well it becomes more expensive to exchange Australian dollars for the currency of the lender (as more money has to be swapped) and the loan suddenly becomes more expensive. This is something that the Australian financial manager has no control over but must be aware of when looking at international financiers.

Another factor that will influence whether a business should borrow from overseas is the interest rate. The interest rate is the cost of borrowing the money and is added to the loan total. Thus, while management may source funds from an international creditor if it is cheaper than Australia, if the interest on the loan progressively increases it will become expensive to maintain. Thus managers need to assess the benefit of borrowing from overseas and lock in the interest rate where possible or take out a short-term loan. They also need to take out loans from international providers who are located in economically and politically stable countries so that the loan is not subject to inflation or interest-rate and exchange-rate fluctuations as this may make the loan a very high future expense.

The Cotton On Group

The Cotton On Group (COG) is an example of a business that has successfully used a range of international finance methods to fund its expansion into global markets. The success of COG is demonstrated by the fact that it owns successful subsidiaries such as Cotton On Kids, Cotton On Body, Rubi, Supre and Factorie and boasts more than 1400 clothing stores across 18 countries, including outlets in the US, Hong Kong, Malaysia, Singapore, Brazil, Oman, South Africa and the United Arab Emirates.

Prior to expanding, management carried out extensive research into not only the consumer markets of these countries but also the most effective way to finance the expansion. They decided to use a mix of funding to reduce the risks involved in growing the business. They decided to lease premises in the new countries as this would not tie up business funds and meant that they could easily change location if needed.

Management also took out overdrafts in each new country to pay suppliers. This low-risk form of funding meant that the business did not tie up funds as they had a month to settle the short-term debt and, by paying back the money on time, they kept the financial costs

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to a minimum. They also took advantage of low interest rates and paid in the local currency (earned from local sales), and so did not have to deal with fluctuating exchange rates.

The business sourced larger loans from international credit providers that offered the most cost-effective loan in the most stable economy. This meant that, although there were cheaper loans available, they were from businesses in countries where the interest rates could suddenly rise so they were not a viable option for COG. In carrying out research and spreading the risk, the management of COG made sure they were able to meet short-term debts both domestically and internationally, thus meeting the goal of liquidity. By not taking out expensive large loans, management ensured the business would remain solvent. In addition, by expanding into other countries, financial management was able to meet the goals of growth and profitability. At all times, through careful research, management have made the most efficient use of funds.

In conclusion it can be seen that global markets have both a positive and negative influence on financial management. They provide another source of funds to meet financial objectives but, if not researched well by management, this can actually lead to greater expenses for the business. The Cotton On Group is an Australian business that carried out appropriate research on the influence played by global markets and, as a result, has seen very successful financial management.

Section IV Question 27

Outline of AnswerThis response could be in either extended-response format or business-report format. It needs to contain relevant theory, illustrated by a relevant case study or studies, using relevant business terminology and concepts. These can be integrated throughout the response or stand alone after the theory is explained.

To gain the maximum range of marks, the response must present a sustained, logical and cohesive response and communicate clearly using relevant business terminology and concepts.

It must relate cause and effect of the impact of globalisation on price and quality perceptions of consumers.

This question is taken from the following ‘learn about’ parts of the Marketing topic syllabus:

• price including pricing methods—cost, market, competition-based

– pricing strategies—skimming, penetration, loss leaders, price points

– price and quality interaction

• global marketing—global branding—standardisation—customisation—global pricing—competitive positioning.

(Total 20 marks)

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Sample Answer

Introduction

Prices will play an important role in drawing consumers to a good or service. The marketing department needs to ensure they apply the correct pricing methods and strategies to the product if they are to attract customers to the business, cover costs and create an appropriate price and quality interaction in consumers’ eyes. However, globalisation adds another dimension as businesses try to attract more customers by selling the product in foreign markets. Deciding on the best pricing strategy that will cover the costs of establishing the product in a new country, as well as building an image where the price reflects the quality in the mind of the consumer, is a difficulty faced by many marketing managers. This is something that has been successfully carried out by the management of Billabong and Zara but not so well by Topshop.

Price and quality interaction

A business can use different methods to attract customers to its good or service. It is important, however, for marketing managers to carry out adequate research on who the customers for its product are, as consumers often make assumptions about the quality of a product based on the price that is being charged for it. Thus, when using pricing strategies, management needs to always be conscious of the way customers perceive their product. If consumers think a product is of low quality they will not pay a high price for it. This is called the price and quality interaction. A business can set its price high to encourage buyers to think of the product as prestigious but, if it does not live up to this image, customers will not make repeat purchases and may also communicate their dissatisfaction publicly, reducing the reputation of the business.

Pricing strategies

The different strategies used by businesses include price skimming whereby the prices are set high to attract the ‘cream’ of customers. Because the prices are higher than those of competitors, customers perceive the product to be of a better quality. Of course the product has to be well made otherwise customers will stop buying it. Penetration pricing is the opposite of this as businesses will deliberately set the price of a product low to get a foothold in the market. Established businesses introducing a new product will often do this as they can use the profits of other items in the range to cover losses. It is important that whatever strategies are used by a business in pricing its products, management keeps an eye on covering the costs involved in making, promoting and placing the good or service. Otherwise the business will fail to make a profit, ultimately leading to the failure of the business. Consequently any pricing strategy must include a cost-price method whereby total costs are calculated as a starting point for the setting of the price.

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Global markets

In order for businesses to grow, become more efficient and innovate they need to consider the opportunities provided by the global market. Moving into global markets may offer new opportunities to make a profit but it can also be very expensive in the short term and this can impact on the pricing of the product. When considering entering overseas markets a business must make wise decisions about global pricing. This could be customised where the business adds a margin after all freight, sourcing and tariffs are factored into the process. This means the product may be a different price in different places due to the added costs. On the other hand it could be standardised where the same price is charged in all markets. These global strategies can also incorporate other pricing strategies of skimming and pricing penetration. Management will also need to remember the importance of cost-based pricing for the expansion to become profitable.

Getting the pricing strategy right in the new marketplace is difficult for marketing managers. A higher price will cover costs but can lead to problems for the business as, due to price and quality interaction, it may mean consumers assume the higher price is reflective of quality, only to find this is not true. There is no worse advertising than an unhappy customer as they will not only stop buying the product but also tell their family and friends of their disappointment. On the other hand, if the business introduces its product at too low a price to penetrate the new global market, it may have trouble covering costs; it may create a low-quality image and may not be able to increase the price to reflect its true cost in the future. Thus it can be seen that globalisation has a significant impact on pricing strategies.

Billabong’s global pricing

Billabong is an Australian company that makes surfing and beach clothing. Due to the small Australian market for its product it moved into international markets. From the start management realised the importance of setting the price correctly so as to cover costs and create the right image in consumers’ minds. To this end the business follows a global policy of standardised pricing. This means that Billabong clothing is the same price in any shop in the world and the quality of the product is the same. Billabong has been able to follow this strategy as they have carried out enough market research to gain a very good understanding of its customers, the quality they expect and the price they are willing to pay.

Billabong does not use competition pricing where it matches or undercuts the price of competitors. Instead the business engages in price skimming where prices are set high to reflect the quality and prestige of the product. In setting its prices higher Billabong sets rigorous standards in the making of the clothes so that customers get a quality and lasting product. Billabong does not engage in heavy discounting of its products either, as management recognises this will interfere with the image of the company. In order to attract its target customer the business sponsors surf competitions around the world. Signage and media coverage of the events provide advertising at an affordable cost. Having the same branding of its products has cut down on costs and so makes the move into new international locations more cost effective.

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Zara’s global pricing in Australia

When Zara, the international clothing retailer, established itself in Australia it used market-oriented pricing. This pricing is based on what customers (the market) are willing to pay for products. After looking at the competition, consumer demand and the state of the economy, marketing managers at Zara set its prices for its Australian stores. The healthiness of the Australian economy meant that Zara was willing to take the risk of establishing flagship stores in major Australian cities. Moreover, having studied the market and customer tastes, the business tried a pricing strategy that included a higher price point than its competitors such as H&M.

This was a smart move as it allowed Zara to not only maintain its brand image of ‘catwalk inspired image’ at an affordable price but also to cover the costs that come with establishing branches in a new country. This pricing strategy was coupled with the fact that not too many items of the same product were available and so fear of missing out meant customers were willing to pay the higher price for the clothing item.

Topshop

In contrast Topshop, another international fashion chain, was less successful than expected in Australia with its pricing policy. The company found it harder to justify higher prices to Australian customers in a competitive retail space. High wages, high rents and local taxes, as well as transport costs, meant the business had to raise prices. Customers, however, did not want to pay these higher prices and soon turned away from the brand. At this particular time in Australia consumers were able to choose from many local and international sellers (including Zara), making it a particularly difficult time for retailers.

Conclusion

In undertaking different pricing strategies it is important that a business sets its price to cover its costs otherwise it will not be a profitable enterprise. This is especially important when moving into global markets as customers will make a strong association between the price they are charged and the quality of the product they expect to achieve. Zara and Billabong have successfully navigated international expansion by understanding their customers and providing them with a product at a quality they want and at a price they are willing to pay.

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