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page 258
Page 258

Question page 258

page 2581
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Answer page 258

  • Screening ideas: select ideas with real potential – worth development – only develop ideas with realistic potentialConcept development: ensures product will meet consumer needs – qualities of product clearly established – concept must match identifiable consumer needsFeasibility study: examines and proves that the product can be brought to the market – proof ‘on paper’ – production, financial, environmental and commercial feasibility must be checkedPrototype development: proof it can be made – identifies difficulties – solves problems – allows costing – can be testedTest marketing: prove market demand for the product – confirm the target market – assess consumer feedback – confirm full production is justified
  • Research and development – staff suggestions/ideas – incentives for ideas – comment/analysis by sales staff – customer feedback – complaints department – feedback through retailers – employee empowerment to increase innovation – TQM improvements – teamwork triggers ideas – employee appraisal
  • C. Good model to identify BEP – summarises a range of production levels – separate fixed and variable costs – quantify fixed costs – quantify variable costs per unit produced – estimate selling price per unit – numerous combinations can be put into break-even analysis to find out when profit, or, if profit, can be achieved – formula or chart can be used. Illustration chart, see p251.
page 281
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Question page 281

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Answer page 281

    • Higher Level Section 2 Applied Business Question Page 281
  • A. Partnership: easy and quick to set up – low set up costs – can make written agreement if they wish – share skills, workload and decisionsLimited company: separate legal entity – owners have limited liability – access to extra capital by getting new shareholders – better credit statusCo-operative: separate legal entity – limited liability – credit status – democratic control regardless of amount invested – NB minimum of seven members required. See pp.263/26, pp.347-356.
  • B. Batch production: direct production control – earn all profits, including those from production – goods produced for stock – production unit already established – product matches existing factory – can produce as requiredSub-contracting: may be lower cost – no capital investment has to be made – no production headaches – may be a specialist/quality producer
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Answer page 281

Business Plan of ‘True Colours’:

Business Plan

The Business: manufacture and marketing of scarves, ties, headbands, etc. in team colours for supporters of all sporting teamsOwners/Promoters: John Jenkins and Brenda ButlerManagement: purchasing and production management by Brenda Butler within her clothing firm BB Fashions – Financial and Marketing management by John Jenkins – further staff to be appointed as requiredProduction plan: initially, product will be outsourced from a European manufacturer until additional production capacity at BB Fashions is ready. Production staff to be hired and trained in the coming weeksMarketing plan: product will be sold through three channels of distribution, through team fan clubs, through sportswear retail outlets and by direct commission sales kiosks organised at match venues. Samples to be produced and market researched with customers. Pricing policy is to match competitor pricing but with a quality advantage as a Unique Selling Point. Product promotions to be run close to big sporting eventsFinancial plan: overall financing required to cover start-up and six months trading is €40,000. Each of the owners will invest €10,000 and the remaining €20,000 will be sought as loan finance divided between a term loan and an overdraft. The enclosed cash flow forecast shows the firm can maintain a positive cash position in its first six months. The projected trading, profit and loss account shows the firm making a net profit of €24,000 in the first year of trading.

page 308
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Question page 308

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Answer page 308

  • A. Product should be positioned as a ‘traditional, old-fashioned, additive-free, special, luxury’ jam. USP could be ‘natural goodness’ or ‘jam as it used to be’ or ‘jam as it should be’ or ‘organic’ or ‘Aunt Julia’s recipe’
  • B. Product: high quality jam from best ingredients – brand name ‘Aunt Julia’s Jam – packaged in attractive jars with label showing kind-faced old lady, in a country garden.Price: premium price to reflect high qualityPlace: sold in delicatessens, supermarkets (producer => retailers)Promotion: in-store merchandising, advertising in women’s magazines, perhaps introductory discount sales promotion
  • C. Yes, the brand name is the product’s primary identifying feature, giving it an identity, so it should be chosen carefully to support the product positioning ‘Aunt Julia’s jam’ helps to give a ‘wholesome’ identity, suitable for the product’s positioning, product recognition, aids customer choice, consumer loyalty and quality image.
page 328
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Question page 328

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Answer page 328

    • Higher Level Section 2 Applied Business Questions Page 328
  • A. Exporting direct to the UK:Problems: transport costs(ferry) – exchange risks (Euro/Sterling) – payment difficulties (different laws) – unfamiliarity with the UK market – extra challenges of increasing output. See p420.Benefits: extra profit on sales – potential for substantial growth – could lower unit costs substantially (economies of scale) – as a result could lower Irish prices too leading to more sales in Ireland – control over product.Licensing the product to a firm in the UK:Problems: loss of profit – loss of growth potential – loss of some control over product.Benefits: no risk – royalties are ‘easy money’ – can devote time to developing new products instead of production headaches.Possible other arrangements: joint venture with a UK manufacturer:Benefits: access to local knowledge, experience of the UK market – potential for good ideas – headaches and costs shared – better able to service the UK marketfrom within the UK – cheaper, easier distribution in the UKDrawbacks: must share profit, control – may be clash of ideas or personalities.Which option?The option chosen depends on Harry’s abilities, energy and management skills. Exporting direct to the UK offers the greatest potential benefits but many possible problems. Licensing offers the easiest solution but least potential benefits. A joint venture might be the good option but depends on matching skills, experience, needs and personalities. The direct exporting option would probably be the best (the UK is not a difficult export market).
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Answer page 328

  • Direct exporting would require ‘heavy capital expenditure’ for ‘expanding production capacity’ to at least twice its present size. Harry is unlikely to have large retained earnings or personal capital and so the most likely sources of finance are:A Business Expansion Scheme: Harry’s business appears an attractive investmentVenture capital: valuable advice at Board level would be available to help the investment to succeed and growEnterprise Ireland grants would probably be available to help fund the expanded premises and machinery. Advice and assistance would also be available to help Harry to crack the UK market.

C. Possible implications of expansion:If direct exporting is pursued: need for extra capital (as outlined); drop in unit costs due to economies of scale (allowing an opportunity for increased sales in Ireland as prices could be lowered); expansion of the workforce, requiring extra management and/or change in the organisational structure (particularly an export sales division, perhaps based in the UK); perhaps a separate UK subsidiary, buying the product from Ireland and selling it in the UK (revealing how profitable the UK operation actually is);If a joint venture is the chosen option: a separate UK company would be necessary, jointly owned by Harry and the UK partner, with a separate organisational structure, financing, corporate image and name to reflect joint ownership;If licensing is chosen: a separate Irish company would be desirable to record the licensing income and pursue other license arrangements in other countries.The short-term effects of either direct exporting or joint venture would be extra costs; re-organisation; HR issues such as recruitment, training and promotion; marketing issues such as advertising, distribution, etc., all depressing overall profits for a few years perhaps, until UK sales take off. The licensing option would, on the other hand, earn new profit fairly quickly without any costs.The long-term effects of exporting or joint venture, however, offer greater potential profit than licensing.

page 344
Page 344

Question page 344

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Answer page 344

  • A. From: Joe Leahy, Industrial Consultant
  • To: Enterprise Ireland
  • Subject: Westcoast Seafoods Ltd, Grant application
  • Date: 07/07/2002
  • This application should be granted as it has strong potential to create additional jobs in the primary sector, where they are needed on the west coast. Westcoast Seafoods Ltd has had several successful projects in the past and has fully met the requirements of previous grants awarded to them. This company is a well established, indigenous firm and as the firm has a proven track record in seafood processing the project is low risk. The market for prepared meals is well established and Westcoast Seafoods Ltd is already exporting to European markets. The company is well positioned in the industry to get a continuous supply of shellfish for their new business. There is plenty of potential in the fishing industry for new firms to develop specialist seafood products for niche markets in Europe and further afield.
  • B. From: Joe Leahy, Industrial Consultant
  • To: Enterprise Ireland
  • Subject: Mobile Components Inc, Grant application
  • Date: 07/07/2002
  • I cannot recommend this application based on the information available. The applicant is an American transnational company whose track record needs to be fully researched. They seem to base their future success on taking customers from an existing indigenous Irish producer, which is not desirable. However, there is a high level of growth in the mobile phone market from which this company can benefit. We need to see more evidence that the applicant can develop markets in Europe. We have to remember that the fast-expanding mobile phone market is also highly competitive and not all manufacturers are likely to survive in the long term.
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Answer page 344

C. From: Joe Leahy, Industrial Consultant

To: Enterprise Ireland

Subject: Global PCs, Grant application

Date: 07/07/2002

This application is an attractive one. Global PCs is a very successful firm worldwide. The call centre would service EU markets and employ graduates with language skills. Call centres like this are essential to the success of firms like Global PCs. While call centres are very mobile industries, this one will remain inside the EU and therefore, is unlikely to be moved from Ireland. It is also possible to get Global to locate in a part of Ireland where jobs are needed, as the call centre only requires a communications infrastructure, which is in place. We have already had many telecentres successfully set up as part of our growing tertiary sector. Global PCs operating in Ireland will help to attract other similar projects.

page 362
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Question page 362

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Answer page 362

    • Higher Level Section 2 Applied Business Question Page 362
  • Limited liability will limit the financial risk to the amount she invests in the business – four new investors will share the risks involved – new investors will provide capital to finance the expansion of the business – more investors can be found in future for further expansion, up to 50 shareholders – four new investors can share the workload and reduce pressure on Antonia – new investors may bring expertise to help with planning and developing new products.
  • Partnership v. Co-operativeNo formalities – no registration – no annual returns – accounts are confidential – all partners involved in decision-making – can work out their own agreement or Deed of Partnership.Co-operative v. PartnershipEach member has limited liability – Co-operative is separate legal identity – democratically run, each member having one vote in decision-making – a Co-operative has higher credit status with banks for raising loans
  • C. Frank Fitzpatrick: the individuals may join together to form a business but can enter strategic alliances with other firms to expand their business in the future. They may also form strategic alliances between them to work on specific projects, separate from their formal business arrangement.Antonia Peterson: future expansion could be conducted through strategic alliances of the limited company with other firms. Alliances could also be used to co-operate with other firms on product development, research and development. Alliances could also be used for marketing of the firm’s products on export markets.
page 377
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Question page 377

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Answer page 377

  • A. Ideas –many ideas for enterprise development – tannery, tourismSkills – restauranteur, organic vegetables, baker, slate craft skillsYoung population – children still in the areaNatural beauty – attractive village, lovely surrounding scenery, local river for fishingSlate quarry – for possible craft industrySeveral entrepreneurs and a number of people interested in developmentCity market within twenty five miles.
  • B. Steps: public meeting of all interested parties – set up community development organisation – research potential of the area – identify problems and development goals – resource audit – select projects – seek assistance from State agencies.Possible difficulties: lack of enterprise – a ‘start-your-own business course’ – provide a mentoring programme for new business owners – get support from County Enterprise Boards for new start-up businesses; lack of finance – grants from State agencies – start local Credit Union; lack of training or skills – organise training programmes with assistance of FÁS.
  • C. County Enterprise Board: could provide grants to conduct feasibility studies for the various business ideas; a bakery, a restaurant, a tannery or tourism; could provide grant aid to any new business which actually starts up in Ballydessy; provide training programmes for management and staff in new enterprises; arrange business mentors to assist and guide new entrepreneurs with their business start-ups.Leader Plus (EU): could fund a feasibility study into the development of slate crafts business in the area (slate ornaments); could fund training or retraining of local people in slate-working skills; could fund the production and marketing of this local primary product which would also develop local tourism.
page 399
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Question page 399

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Answer page 399

  • A. Regulations/controls: Competition Authorityrefused permission for takeovers; planning authority (Cork Co. Council) had to approve new building, and Brecko had first to carry out an Environmental Impact Assessment when applying for planning approval.
  • Government supports/services: low tax rates, capital grants to set up the factory, training grants, grants for feasibility studies for new products, marketing assistance for export products
  • B. 12% rise in Euro would hit UK sales as Brecko’s cereals would become dearer there.Inflation up to 5% would raise Brecko’s costs (e.g. wages); these extra costs could not be passed on to UK consumers, so profitability of exports would be squeezed a bit.Sharp rise in interest rates would seriously hurt Brecko, which ‘has borrowed heavily to invest in a new plant’; big rise in interest costs
  • C. Low interest rates: reduced interest costsLow inflation: stable costs (e.g. wages)Low taxation: buoyant demand for cereals – less upward pressure on wages costsBetter infrastructure would make exporting to UK (and transport within Ireland) easierStable wage levels (e.g. by National Agreement) allow more accurate future planning of wage costs.
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Question page 411

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Question page 411

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Answer page 411

  • A. To earn reasonable profits for the shareholders – to pay staff a reasonable wage for the work they do – to ensure staff are safe at work and to prevent accidents – to protect the local community and society generally from pollution – to charge customers fair prices and not to collude with other firms to fix prices – to pay its suppliers within the terms agreed – to compete fairly with its competitors and not to do anything illegal to obtain business
  • Change leadership style – be proactively ethical and socially responsible – set company objectives other than profits – produce a code of ethics for the firm with sanctions for those who break the code – inform and train staff on ethical standards expected of them – put management systems in place to monitor social responsibility of the firm – encourage reporting of unethical behaviour – develop an ethos which is ethical and socially responsible
  • Improved public image – improved relations with local community and interest groups like anglers – improved sales as a pro-environment firm – improved customer loyalty because of good image – avoid possible objections and court cases resulting from pollution – better production control and efficiency as a result of efforts to prevent pollution – reduced levels of wasteful packaging may save costs for the firm – avoid fines and ‘polluter pays’ costs if found guilty of damaging the environment, e.g. fish kills – staff will be happier and more motivated – may attract pro-environment investors.
page 429
Page 429

Question page 429

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Answer page 429

  • A. Britain: nearest neighbour so low transport costs – same language – same culture and tastes – similar laws – millions of Irish resident there; however, different currency, so exchange risks.Holland: higher transport costs to reach Dutch market – different language – different culture and tastes – different laws – no cultural links; however, same currency, so no exchange risks
  • B. Enterprise Ireland: market research information – help with distribution channels – advice and assistance with advertising and promotion abroad – translation services.Bord Bia: marketing assistanceIrish Embassy in Holland; market information and contactsBanks: International money transfer – secure methods of payment
  • C. Market growth potential in Ireland is limited. Firm ‘has capacity to increase output’ in the present set-up ‘and has land and finance available for further expansion’. Market research suggests there are profitable niche markets in the UK and Holland.Potential benefits: profitable sales in the UK and Holland. Higher output should reduce unit costs (economies of scale), giving greater profitability on domestic sales. Sheila Costello hopes expansion would help to prevent a take over of the firm.
page 455
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Question page 455

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Answer page 455

  • A. CAP: has provided increased farm production and rising farm incomes since joining the EU; this allowed SWAG to increase sales and profits.EMU: has reduced exchange transaction costs when trading with Eurozone countries – exchange risk uncertainty remains in exporting with Britain, which is not part of the Eurozone.Structural policies: provided finance for development of infrastructure in their area of business making it easier for the firm.Environmental policies: the firm has incurred costs ensuring that it does not breach environmental standards – firms required by EU policy to take environmental impact into account when evaluating projects.Social policy: EU minimum standards for protection of workers’ rights ensures the firm complies with regulations
  • B. Lobby Commissioners – provide information and arguments to EU civil servants within the Commission – organise public events to put pressure on the Government to work for the decision they require – target the Irish Ministers responsible for voting on these decisions, in order to influence their decisions – lobby each of Ireland’s MEPs to try to ensure that they will support their case in the European Parliament – try to create positive publicity in support of their case to pressure the decision-makers
  • C. Benefits: no exchange transaction costs when doing business with firms in the Eurozone – no uncertainty about exchange risks when trading inside the Eurozone – easier to compare prices from suppliers in different countries – increased price competition may bring down prices.Drawbacks: Britain remains outside of Eurozone – a stronger Euro may make exports to Britain dearer and less competitive.
page 467
Page 467

Question page 467

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Answer page 467

  • Challenges of global business: the local companies which supply components and services to Alpha are in danger of losing a big customer – perhaps their only customer; Xano has the chance of global success but must get this opportunity absolutely right first time: they must be able to promote successfully and meet demand with total quality – may face threat of take over by a global competitor; Kiltubber Foods is in a serious competitive battle with a global producer which has the benefit of low unit costs, massive resources for marketing, global brand identity and practically unlimited resources to fight this battle, should it choose to. Kiltubber has already lost the first round (‘sharp fall off in sales’).

B. Alpha will consider: how much they are overstocked worldwide; when the world recession might end; when the EU market (served by Kiltubber) might pick up; what the cost of a temporary (e.g. 6 months) shutdown v. permanent shutdown would be in each facility; what the unit cost of production at Kiltubber is v. other facilities elsewhere; what the market demand is in the EU (served by Kiltubber); what the terms of the IDA contract would be, if a grant were given to Alpha’s Kiltubber factory.

  • C. Factors which will affect success:Product: the USP – does it have global appeal – is the product quality world class – is it reliable – is the packaging excitingPrice: the image the price will convey – is it top quality – will it offer value for the pricePlace: will the distribution deal get it into enough shops – especially, the right shops (those which sell the most product) – does it match competitor pricesPromotion: will the promotion motivate the target market to buy – will it be properly timed and placed to hit the major markets at the right time – is the message effective as a sales technique.