The Association of Business Executives Diploma

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6.11 TBE

The Business Environment

afternoon 2 June 2009

1 Time allowed: 3 hours. 2 Answer any FOUR questions. 3 All questions carry 25 marks. Marks for subdivisions of questions are shown in brackets. 4 No books, dictionaries, notes or any other written materials are allowed in this examination. 5 Calculators, including scientic calculators, are allowed providing they are not programmable and cannot store or recall information. Electronic dictionaries and personal organisers are NOT allowed. 6 Candidates who break ABE regulations, or commit any misconduct, will be disqualied from the examinations. 7 Question papers must not be removed from the Examination Hall.

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ABE 2009

D/501/7553

Answer any FOUR questions Q1 (a) (b) Examine why ethical dilemmas may arise when running a business. (10 marks)

Outline, and justify, the strategies that the management might follow in compiling a corporate ethics framework to help avoid ethical dilemmas arising. (15 marks) (Total 25 marks)

Q2

The organisation you work for is considering how it can increase its business activity by developing trade with the European Union (EU). To help you to decide how best to take this forward: (a) (b) Identify the potential opportunities that such trade might offer. (15 marks)

Evaluate the likely impact of one threat that might limit opportunities for developing trade with the EU. Choose from technical barriers, EU legislation or another valid threat. (10 marks) (Total 25 marks)

Q3

(a)

Explain the two basic types of competitive advantage. Use examples to support your answer. (13 marks) Discuss four assumptions that limit the application of the theory of competitive advantage in the world of business. (12 marks) (Total 25 marks)

(b)

Q4

Regional Development Policy is often evident in regulations which dene common rules, standards and principles. Referring to a Regional Development Policy with which you are familiar to support your answer, discuss the impact of such regulation on the planning and objective-setting of business organisations. (25 marks)

Q5

(a) (b)

Explain how taxes imposed by governments can impact upon a business.

(10 marks)

Explore why businesses might put pressure on national governments to remove barriers such as taxes. (15 marks) (Total 25 marks)

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Q6

Culture is an important factor to consider in order to understand the way businesses operate in different countries. (a) (b) Explain what culture is and show how it inuences businesses. (10 marks)

Examine the disadvantages of using culture to explain the way businesses operate in different countries. (15 marks) (Total 25 marks)

Q7

(a)

Identify the initial information required, through market research, to assess the potential of a prospective new market. (5 marks) Evaluate the worth of indicators of market potential, such as economic freedom, when assessing opportunities for entering a new market. (20 marks) (Total 25 marks)

(b)

Q8

You are part of a project team tasked with review and replacement of the existing information and computer technology (ICT) systems for your organisation. The last time such equipment was replaced, a number of legal issues arose after installation leading to delays and bad feeling with the main supplier. To reduce the likelihood of such problems impacting on the success of the new systems, you have been asked to provide the following: (a) An outline of the key aspects of merchantable quality that need to be covered within the contract for the purchase of computer equipment. (10 marks) An explanation, using examples, of the three essential elements that must be present for your organisation to sue the computer equipment supplier on grounds of negligence. (15 marks) (Total 25 marks)

(b)

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Diploma The Business Environment Examiners Suggested Answers Q1 (a) The answer needs to be developed from evidencing a sound understanding of what business ethics are. A statement which denes business ethics (ethical dilemmas) - i.e. the ethical principles and problems that arise in a business environment, would serve as an appropriate introduction to this section of the answer. A general statement as to why conict might arise would provide a basis for further development. A suitable comment explaining business ethics would be: Since ethics in business can be viewed from various perspectives, including that of the employee, the business as a corporate entity and society as a whole, there will inevitably be potential for conicting views as to what is ethical. The answer could be further developed by then going on to explore situations where conict might arise, giving examples to support this. This could point out that situations commonly arise where there is conict between one or more of the parties regarded as stakeholders. For example, wage negotiations, building or extending premises, international business where fair trade may becomes an issue. (b) This section of the answer needs to introduce, and discuss the core premise that businesses have to devise strategies which avoid ethical dilemmas. A useful point to make at this stage would be that since the core responsibility of any business is to its stakeholders, anything that falls outside this thinking should not be a consideration. However, it would then be appropriate for the answer to go on to focus on the need to harmonise and reconcile conicting interests. This should lead to the suggestion that a policy needs to be devised to structure this for future application. The answer could then be developed by offering a suitable framework for development of relevant points. For example, any policy must be:

Devised and led from the top, or it will not be effectively implemented. Explained (orally and in writing) and reinforced to ensure all staff are made aware of what is expected of them. Must be achievable, otherwise staff will be demotivated. Needs to be monitored in practice, otherwise how do you know if it is working? Must have clearly dened consequences if not followed, otherwise it will not have the required impact. Must be neutral and non-discriminatory, taking cognisance of any relevant rules, regulations and legislation.

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Q2

(a)

An effective answer could be built around ve potential opportunities for increased business activity. Thus, the following offer a sound basis to achieve this:

Increased level of economic activity - there is a clear opportunity to grow the business by increased production and sales. Economies of scale - this reects an increase in output compared to level of input and could lead to a decline in long-run average costs. Increased efciencies - this could be reected in higher levels of activity, but a smaller increase in administrative support staff. Improved competiveness - the challenge of entering new markets encourages businesses to look at their current approaches and acts as a spur to improved competitiveness. Stimulation of specialisation - a product or service which is not regarded as specialist in a home market may prove to be innovative and allow the development of a suitable specialist niche when trading in the European Union.

(b)

This part of the answer could choose one of the two threats identied in the question, or choose another suitable threat such as scal barriers. Answer should make clear the nature of each threat, say why each is a threat, and develop the answer by evaluating the impact of each. Using an example(s) would help this to be made clear. For example: Technical barriers - these include ICT facilities and plant and equipment, as such they may be a threat in that there is incompatibility between either hardware and software used or lack of skilled staff to operate equipment locally. The impact of either of these could lead to an insurmountable problem. For example, the cost of achieving compatibility may be too great or technically complex, similarly it may not be possible to recruit suitable local staff or put in place other measures to ll the skills gap. European Union legislation Meeting the needs of local legislation can be a major barrier. This may relate to issues of health and safety or may deal with matters of a more scal nature. While such matters are not insurmountable, they can cause costly delays. Recognising and meeting the needs of local legislation, and European Union legislation is particularly complex, requires considerable research and preparation. This is made more difcult by the reality that legislation is continuously subject to updating. Critically, it is an area which cannot be ignored. Thus, rst a clear understanding is required which in turn will allow appropriate policies to be put in place and their effectiveness monitored.

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Q3 (a)

The answer can be effectively introduced by a brief explanation of Porters work on Supply Chain Management and the principle of the value chain. It is important that the answer teases out that competitive advantage is judged by the customer or buyer, not the seller. The answer can then be developed by examining cost leadership and differentiation: Cost leadership - this should include reference to Porters ten cost drivers within each value activity. This allows an assessment of what is viable and allows consideration of how it might be achieved. For example, the organisation may pioneer the lowest cost design. Differentiation - it is important to tease out that the main thrust of competitive advantage is likely to be product differentiation. Answer should pick up that differentiation is a qualitative factor and is basically a search for uniqueness. For example, competitive advantage can be achieved by innovation to increase buyer value. In practice, the application of the principle of competitive advantage rests on a number of assumptions that limit its effective use in business. The answer could be developed around the following assumptions or in some cases limitations: First is the assumption that countries are only driven by a desire to maximise production and consumption. This is often not the case given that some governments will take an interest in international trade to help workers and consumers. Secondly, the theories assume that there are only two countries producing and consuming goods. This is clearly not the case when we look at real world economies. A third assumption is that there is no cost involved in transporting goods between countries. Clearly there are costs, and if costs are greater than savings trade will not take place. The theories also consider labour to be the only resource. While labour is clearly a significant part of the costs, it is not the only cost. In practice, it may not be the largest component in total costs.

(b)

Q4 Answer needs to be developed from an understanding of Regional Development Policy and Regulation. An effective way to achieve this is to introduce the answer by explaining the aim of regulation, for example, in the context of the European Union. Regulation aims to strengthen economic and social cohesion in order to promote the harmonious, balanced and sustainable development leading to growth and employment. For businesses, this impacts in three main ways: An important initial point to make is that convergence helps less developed countries and regions. This part of the answer could be further developed by giving a suitable example. Thus, for companies moving into or operating in these areas, finance for required actions, such as retraining staff, will be provided.
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Regional competiveness and employment is the next important point to make. This part of the answer could be further developed by giving a suitable example. Thus, for companies moving into, or operating in these areas, nance for action such as improving accessibility, will almost certainly be provided. The third issue to discuss is European territorial co-operation. Once again, it is important to develop this point by giving a suitable example. This could involve a discussion of cooperation on research. This will again be likely to attract any necessary nancial support. Answer could then proceed to identify and discuss up to ve examples of specic impact on planning and objective setting. For example: Identication of areas to which business activity might move or be further extended as part of long-term planning, such as newer European Union (EU) Member States. Planning budgets which incorporate the mix of EU provided nance and the contribution from the organisation, such as matched funding. Developing and setting objectives for systems for nancial management that are transparent in satisfying EU monitoring, such as devising effective audit trails. Setting objectives for human capital that reect EU expectations. An example would be creating jobs. Seeking and implementing opportunities for partnership. This could take the form of shared research.

Q5

(a)

An appropriate answer needs to be developed from an initial explanation of what a tax is in the context of a business. A good way to make this point is to give an example. Such as a tax on goods that are shipped internationally. The answer can be developed by explaining the impact that taxes have on a business. For example, the following advantages of using taxation could be discussed: Protect the local companys products, thus helping, for example, newer businesses. Making dumping of cheaper goods more difcult, which prevents undercutting of local suppliers. Raising government revenue, which provides money for investment in local businesses.

(b)

Reasons will include: Image: Companies wish to be seen as offering a level playing eld. This helps both in the domestic market to boost sales and also may discourage taxes being levied against them in international markets. Success of taxes: Arguably, they are not the most effective means to generate investment, and there is the risk of losing more than is gained, with businesses perhaps receiving very little, if any, investment derived from taxes. May lead to destructive competition: Thus, a company may face retaliation even though not directly involved in the product concerned. For example, the USA and China have had disputes over copyright of material.

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Q6 (a) Answer should be introduced by an explanation/definition of culture. This would be expected to explore - shared values, understandings by employees and managers, assumptions held and learned goals. For example, a statement such as culture is demonstrated in the way we do things around here. This needs to make clear that culture represents human activity which is socially rather than genetically transmitted. This to be developed to confirm culture will impact on all aspects of business and in particular the ways in which business can learn from other cultures and select the positive experiences to a different setting. The main thrust of answer needs to be an exploration of the difficulties in using culture as a variable. An effective answer could be built around the following issues: Collection of raw data: Developed to point out the difficulties of collecting data. For example, statistics on strikes are difficult to compare since different countries use different yardsticks to define a strike Comparisons: Developed to point out that comparisons tend to be made from the perspective of only one country. Thus, conclusions are based on the values held by that culture (usually our own). For example, the approach to accounting ratios by the USA compared to Japans views on market penetration in the 1980s. Language: Developed to point out that some concepts do not easily translate, for example, the German concept technik. Changes over time: Developed by discussion of the fact that cultures can and do change over time. For example, Singapore has challenged Hofstedes classification that Singapore business is low risk avoidance and therefore typified by a willingness to take risks. Arguably, this may have been valid 30 years ago, but is much less evident into todays Singapore business environment. The answer requires a brief indication of initial information required to assess the potential of a prospective market. Such information/indicators will provide a quick overview of the size and structure of a countrys market for a product. This could be developed by pointing out that market research uses such indicators as an effective way to gain a great deal of data, for example, providing a basis from which to calculate a products income elasticity. The worth of market potential indicators when assessing emerging markets cannot be over stressed. An effective answer will offer the opportunity to explore the particular needs of emerging markets in terms of using market research to carry out an analysis of market potential. Four indicators/factors for discussion would provide a suitable breadth of understanding.

(b)

Q7 (a)

(b)

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These will include: Economic freedom: Developed by saying why it is a useful indicator by indicating to what degree free market principles predominate although may be undermined by changes in government or government policy. Commercial infrastructure: Developed by saying how it is helpful to be able to assess variables such a personal computers per capita but this data becomes quickly outdated. Market size: Developed by saying this offers a snapshot of the overall economy, but is precisely that, a snapshot and must be supported by use of further indicators. Country risk: Developed by saying useful in that it attempts to estimate total risk, but difficult to achieve a realistic indicator because of the range - financial, political, social risks - that it tries to cover. The key aspects of merchantable quality to be covered within the contract for the purchase of computer equipment: Sale of Goods legislation in the UK requires that goods be of a merchantable quality and what a reasonable person would regard as satisfactory quality. This requires: Fitness for all the purposes for which the goods are supplied. Thus, the computer equipment must be able to meet agreed specifications. Be of suitable appearance and finish. Thus, the equipment must meet any agreed requirements such as size and appearance of desk-top screens. Be free from minor defects, thus not having any form of defect which lessens the equipment capability to meet user requirements. Be safe, thus not have loose wires or faulty connections that might lead to injury of a user. Durability, thus being capable of meeting the requirements of normal day-to-day use. In UK law, three essential ingredients are required to sue on grounds of negligence: A duty of care owed to the injured party: an employee of the buying company who received an electric shock is covered by duty of care even though the contract is not with them as an individual. A breach of that duty of care: developed by explaining that, for example, since computers run on electricity, an employee of the buying company who received an electric shock is covered by such a duty of care and would be able to sue. Consequential loss: that is, loss which is a direct result of the breach of duty of care developed by explaining that should the individual die, be seriously impaired or, if not affected long-term, be absent from work whilst recovering from injury, the computer supplier is liable to pay damages to the injured party.

Q8 (a) (b)

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