Paolo wants to start up a business making cakes. He plans to sell all of his products to a wholesaler. Paolo knows the packaging for his products will be important. He has prepared some financial and sales data. An extract from this data is shown in Table 1.1. Paolo is considering using crowdfunding as a source of finance. He knows the business will also need working capital.
| Average price per cake | $6 |
| Average cost per cake | $4 |
| Forecast average number of cake sales per day | 50 |
Working capital is the money available to a business to pay for its day-to-day running costs. It is calculated as current assets minus current liabilities.
Formula:
$$\text{Revenue} = \text{Price per unit} \times \text{Quantity sold}$$
Substituting values:
$$\text{Revenue per day} = \$6 \times 50$$
$$= \$300 \text{ per day}$$
Packaging protects the cakes during transportation and storage to the wholesaler. Effective packaging prevents physical damage (e.g., crushing) and contamination, ensuring the product arrives in good condition. Without suitable packaging, cakes could be spoiled or damaged in transit, resulting in lost sales and a poor reputation.
Food products are legally required to carry information on the packaging, such as ingredients, allergens, nutritional content, and best-before dates. This ensures compliance with food safety regulations. Failure to display this information could result in legal penalties and prevent the wholesaler from stocking the product.
Advantage: With reward-based crowdfunding, Paolo raises money from a large number of backers online without taking on debt.
Explanation: Unlike a bank loan, crowdfunded money does not need to be repaid with interest. In the early stages of Paolo’s start-up, cash flow is likely to be limited, so avoiding loan repayments reduces financial pressure on the business and helps maintain working capital. Backers typically receive a reward (e.g., a box of cakes) rather than repayment of their contribution.
Disadvantage: To attract crowdfunders, Paolo must publicly advertise his business idea on a crowdfunding platform.
Explanation: This exposes the business concept to potential competitors who could copy it before Paolo has had the chance to establish his brand. Since making cakes is relatively easy for competitors to replicate, this could lead to increased competition from the outset, making it harder for Paolo to build a loyal customer base and sustainable revenue.
Argument FOR selling to a wholesaler (for a start-up):
Selling to a wholesaler is beneficial for a start-up like Paolo’s because the wholesaler buys in bulk, providing large and reliable orders from the beginning. This gives Paolo a steady cash flow, which is particularly important in the early stages when the business needs working capital. Additionally, the wholesaler takes on the responsibility of distributing the cakes to retailers or consumers, meaning Paolo can focus entirely on production without needing to manage complex logistics or find many individual customers.
Counter-argument (alternative channels may be better):
However, selling to a wholesaler means Paolo receives a lower price per cake, as the wholesaler buys at a discount and marks up the price to make its own profit. By selling directly to retailers or consumers (e.g., through an online shop or local markets), Paolo could earn a higher price per cake, increasing his profit margin. Direct channels also give Paolo more control over his brand and how the product is presented to consumers.
Justified conclusion:
Overall, for a start-up specifically, selling to a wholesaler is a good initial channel because it guarantees volume and simplifies operations during the critical early stage when resources and experience are limited. However, it is not necessarily the best long-term strategy, as the lower margins reduce profitability. As the business grows and develops more market knowledge, Paolo should consider adding direct retail or online channels to increase revenue per unit.
TBX manufactures high-quality steel which is used to build railways. The method of production used allows TBX to benefit from economies of scale. The business holds a high level of inventory including iron ore. The Managing Director knows business activity could have an impact on the environment and is considering ways the business can contribute to sustainable development.
Manufacturing processes (such as steel production) produce emissions of carbon dioxide and other gases, contributing to air pollution and climate change. Industrial waste may also pollute water sources.
TBX uses iron ore, a non-renewable natural resource. Extracting and processing iron ore reduces finite reserves. Other non-renewable resources such as fossil fuels are also consumed during steel production.
The business could switch to renewable energy sources such as solar or wind power to reduce carbon emissions and dependence on fossil fuels.
The business could recycle materials (e.g., using scrap steel as a raw material input) and reduce packaging waste, conserving natural resources and reducing landfill.
As a large-scale manufacturer, TBX can purchase iron ore and other raw materials in very large quantities. This gives TBX significant bargaining power to negotiate bulk discounts from suppliers, reducing the cost per unit of raw material. These lower input costs reduce TBX’s average cost of producing each tonne of steel.
TBX can invest in large, specialist blast furnaces and automated production equipment that operates more efficiently at high volumes. This sophisticated machinery is expensive but produces steel at a lower cost per unit than smaller-scale equipment. The high capital cost is spread over TBX’s large output, so average cost per tonne of steel falls.
Problem: TBX needs extensive warehouse and yard facilities to store large quantities of iron ore and finished steel.
Explanation: Storage costs include rent or ownership of large sites, insurance, security staff, and maintenance. These costs are ongoing regardless of whether the materials are being actively used in production. Capital that is tied up in excess inventory could otherwise be used more productively — for example, invested in new equipment or used to expand the business. This reduces TBX’s overall profitability.
Problem: TBX risks holding materials or finished steel that deteriorate or become unsuitable for use.
Explanation: If iron ore is stored for a long period, it may become contaminated or degraded. More significantly, if TBX’s customers (railway companies) change their technical requirements, the steel already in inventory may not meet the new specifications. This could result in TBX having to write off large quantities of stock, leading to significant financial losses and potentially disrupting production schedules.
What quality control involves:
Quality control means checking and inspecting products at the end of the production process. Products that do not meet the required standard are rejected before they reach customers.
Argument FOR quality control being effective for a manufacturer:
For a manufacturing business like TBX, quality control provides a clear, systematic check that ensures all steel leaving the factory meets the required specifications. It is relatively straightforward to implement using a team of specialist inspectors. It provides a safety net that prevents defective products from reaching customers, which is important in a safety-critical industry like railway construction where a steel defect could cause serious accidents.
Counter-argument (quality assurance / TQM is better):
However, quality control only identifies defects after they have been produced, meaning materials and labour have already been wasted on defective output. Quality assurance (QA) involves checking quality at every stage of the production process, so problems are detected and corrected early before further resources are wasted. Total Quality Management (TQM) goes further by making every employee responsible for quality, creating a culture of continuous improvement throughout the organisation. For a manufacturer of high-quality steel used in critical infrastructure, preventing defects is far more efficient and safer than simply catching them at the end.
Justified conclusion:
Quality control alone is not the best method for TBX. Given the safety-critical nature of railway steel and the high cost of materials, quality assurance — building quality checks into every stage — is more appropriate. Quality control remains useful as a final check, but relying on it alone leads to waste and does not address the root causes of defects.
Country X has a mixed economy with both private and public sector organisations. These organisations are involved in different sectors of economic activity. In the last 20 years the primary sector has become less important to country X’s economy. A summary of the changes is shown in Table 3.1. The government is planning to encourage multinational companies to set up factories in country X.
| Economic sectors in country X as a percentage of GDP | |||
|---|---|---|---|
| Year | Primary | Secondary | Tertiary |
| 2000 | 60% | 15% | 25% |
| 2020 | 20% | 30% | 50% |
The public sector consists of organisations that are owned and controlled by the government. These organisations are funded through taxation and provide essential public services (such as education, healthcare, transport infrastructure, and defence) for the benefit of society as a whole, rather than aiming to make a profit.
Gross domestic product (GDP) is the total monetary value of all goods and services produced within a country during a given time period, usually one year. It is used as a measure of the size of a country’s economy and its rate of economic growth.
- Type 1: Sole trader — a business owned and run by one person who takes all the profits and bears all the risk
- Type 2: Partnership — a business owned by two or more people who share profits, losses, and responsibilities
- Type 3: Private limited company (Ltd) — a company owned by shareholders; shares are not sold to the general public
- Type 4: Public limited company (PLC) — a company whose shares are traded on a stock exchange and available to the general public
Reason: Country X has undergone significant industrialisation, shifting economic activity towards the secondary sector.
Explanation: The data shows the secondary sector (manufacturing) grew from 15% to 30% of GDP between 2000 and 2020, doubling in relative importance. This suggests Country X has deliberately developed its manufacturing base — possibly through investment in factories and infrastructure. As countries develop economically, they typically shift away from primary activities such as farming and mining towards more value-added manufacturing industries, which reduces the primary sector’s share of GDP from 60% to 20%.
Reason: The tertiary (services) sector has grown dramatically and now dominates the economy.
Explanation: The data shows the tertiary sector grew from 25% to 50% of GDP — the largest absolute increase of any sector. As incomes rise with economic development, consumers demand more services such as retail, banking, tourism, education, and healthcare. The expansion of the service sector further reduces the relative importance of primary activities. Even if primary sector output in absolute terms did not fall significantly, its share of a growing economy naturally shrinks as services become the dominant activity.
Benefits of a multinational company (MNC) locating in Country X:
- Creates employment for local workers, reducing unemployment and raising household incomes
- Brings foreign direct investment and capital into the country, supporting economic growth
- Transfers technology, skills, and modern management practices to the local workforce
- Increases tax revenue for the government (corporation tax, income tax from workers)
- Stimulates local supply industries that provide goods and services to the MNC
Drawbacks of an MNC locating in Country X:
- Profits may be repatriated — sent back to the MNC’s home country — limiting economic benefit to Country X
- The MNC may exploit cheap local labour, paying low wages in poor working conditions
- Local businesses may be unable to compete with the MNC’s resources and lower prices, leading to local business closures
- Industrial production may cause environmental damage, including pollution and habitat destruction
- The MNC may exert political influence, potentially affecting government policy in its own interests
Justified conclusion:
The benefits are not always greater than the drawbacks. Whether they are depends on factors such as the strength of the host country’s labour laws and environmental regulations, the type of industry, and how much of the profit remains in Country X. In a country with weak regulation — such as Country X, which is still developing (as suggested by the large primary sector in 2000) — an MNC may exploit labour and cause environmental harm that outweighs the economic benefits. However, with strong government regulation and appropriate policy, MNCs can bring genuine and lasting development benefits.
TFN is a travel business which sells holidays. It has 37 shops and 1000 employees. Last year TFN’s profit increased to $46 million. The Managing Director knows that good customer service has helped maintain customer loyalty. He said: ‘TFN’s managers use ideas from Herzberg’s two-factor theory to help motivate employees. All employees are provided with off-the-job training and each manager has a wide span of control.’
Loyal customers return to buy from TFN again without the business needing to spend heavily on marketing to win them back, providing a reliable and predictable revenue stream.
Loyal customers are likely to recommend TFN to friends and family. This free word-of-mouth advertising helps attract new customers at no additional marketing cost.
Pay is a hygiene factor: if employees feel underpaid they become dissatisfied and may leave, but increasing pay alone does not strongly motivate them to work harder.
Poor physical working conditions (e.g., uncomfortable offices, inadequate facilities) cause dissatisfaction. Improving conditions removes dissatisfaction but does not in itself inspire higher performance.
TFN’s shareholders (investors) expect a financial return on their investment in the form of dividends, which are paid from profit. With profit increasing to $46 million, TFN can distribute a significant dividend, rewarding investors and making TFN’s shares attractive. This also helps the business retain investor confidence and maintain access to future capital.
Retained profit (profit kept in the business) can be reinvested to fund TFN’s expansion — for example, opening additional shops, developing new holiday products, or upgrading booking technology. Using retained profit avoids the need to borrow, saving TFN the cost of interest payments and reducing financial risk.
Advantage: A wide span of control creates a flatter organisational hierarchy with fewer management layers.
Explanation: With fewer layers between senior management and shop-level employees, information and instructions travel more quickly through TFN’s organisation. This allows TFN to respond faster to customer needs, competitor actions, or operational issues across its 37 shops. Quicker decision-making is a significant advantage in the competitive travel industry where customer expectations and booking conditions can change rapidly.
Disadvantage: With a wide span of control, each manager is responsible for supervising a large number of subordinates.
Explanation: In a service business like TFN where customer-facing quality is critical to customer loyalty and repeat business, managers may struggle to monitor each employee’s performance, provide adequate support, or conduct regular appraisals. This could lead to inconsistent standards of customer service across TFN’s 37 shops, potentially damaging TFN’s reputation and reducing the customer loyalty that the Managing Director has identified as key to TFN’s success.
What off-the-job training involves:
Off-the-job training takes place away from the normal working environment — employees attend courses, workshops, or college programmes delivered by specialist trainers.
Arguments FOR off-the-job training being the best method for TFN:
Off-the-job training allows TFN’s employees to receive instruction from specialist trainers with in-depth knowledge (e.g., destination experts, customer service professionals). Staff can focus entirely on learning without the interruptions and pressure of the normal work environment. It is particularly useful for training new employees before they start dealing with customers, ensuring they are properly prepared. It also allows TFN to train employees in skills that cannot easily be demonstrated on the job (e.g., using complex booking software, handling difficult customer situations via role-play).
Counter-argument (on-the-job training may be better for a service sector business):
However, on-the-job training has significant advantages for a service sector business like TFN. Employees learn in the actual working environment — dealing with real customers, using the real booking systems, and following TFN’s specific procedures. This makes the training immediately relevant and practical. On-the-job training is also considerably cheaper, which matters for a business with 1000 employees across 37 shops, as off-the-job course fees, travel, and lost working time represent a significant cost. Furthermore, experienced colleagues can demonstrate the small but important aspects of TFN’s customer service style that are hard to replicate in an external training course.
Justified conclusion:
Off-the-job training is not necessarily the best method on its own for TFN. While it is valuable for initial induction and developing specialist knowledge, on-the-job training is more cost-effective, directly relevant, and practical for a large service business. A combination of both methods is likely optimal: off-the-job training for new starters and specialist skills, and on-the-job training for day-to-day service skills and ongoing development.
