Question 1 ITfix Helene owns a computer repair business – ITfix. She employs three skilled workers. The business operates from rented premises. It owns some machines but leases testing equipment. ITfix is very busy but there is no room for further employees in the small workshop. Helene is proud of her success in starting up and expanding such a profitable business. Despite its success, ITfix has insufficient finance to buy its own premises – Helene believes that this would be a wise investment for the future. 10 marks, 20 minutes a) Define the term ‘sole trader ‘. [2] b) Explain one advantage and one disadvantage for Helene of being a sole trader. [4] c) Analyse two benefits the introduction of a partner would bring to Helene’s business. [4] Question 2 THE GOOGLE™ PHENOMENON In 1995, Larry Page and Sergey Brin met at Stanford University. The following year they formed a partnership and began collaborating on a search engine called BackRub. In 1997, they decided to rename BackRub and came up with Google (derived from ‘googol’, a mathematical term for the number represented by the numeral 1 followed by 100 zeros). With $100 000 support from a backer, Google Inc. was set up in 1998 in a garage in California. Later that year, PC Magazine recognised Google’s search engine as one of the top 100 websites. In 2000, Google became available in many languages including French, German, Italian and Chinese. By 2004, the Google search index contained six billion items, including 4.28 billion web pages and 880 million images. It moved to an office in California called Googleplex with more than 800 employees and offices all over the world. In the same year, Google became a public limited company offering for sale 19 605 052 shares at an opening price of $85 a share. Over the next five years, Google refined and added to its search engines a range of products such as Google News, Google Earth, Google Maps and Google Video. Today, Google is a huge multinational corporation worth around $160 billion and its share price is over $500 a share. a) Define the term ‘partnership’. [2] -a partnership is a business formed by two or more people to carry on a business together, with shared capital investment & shared responsibility. b) Outline two possible benefits to Larry Page and Sergey Brin of starting Google as a partnership. [4] Larry Page and Sergey Brin benefited in several ways from starting Google as a partnership. Here are two possible benefits: Shared Responsibility: When Larry Page and Sergey Brin founded Google as a partnership, they shared the responsibilities and decision-making. This allowed them to leverage their individual strengths and expertise. Page was more focused on the technical aspects, while Brin was involved in the business and administrative aspects. This division of labor allowed them to work collaboratively, making the company more resilient and adaptable to various challenges. Capital and Resources: By forming a partnership, Page and Brin were able to pool their resources and capital to fund the startup. This made it easier for them to secure initial funding, purchase necessary equipment, and cover operating costs. Sharing the financial burden reduced the personal risk for each of them, which is especially important when starting a new venture with uncertain outcomes. Overall, the partnership structure provided Larry Page and Sergey Brin with a strong support system, combining their skills and resources to build Google into the global tech giant it has become. It also helped them mitigate individual risks and ensure a more balanced approach to managing the company's growth and development. c) Analyse two possible problems Larry Page and Sergey Brin might encounter by starting Google as a partnership. [4] Decision-Making Disagreements: One of the key challenges in any partnership is the potential for disagreements and conflicts over major decisions. Larry Page and Sergey Brin, while sharing responsibilities, could have had differing visions or strategies for Google's growth. This could have led to disagreements on issues such as product development, expansion plans, and resource allocation. If not managed effectively, such disagreements could have slowed down decision-making and hindered the company's progress. Lack of Clear Leadership Structure: Partnerships often lack a clear hierarchy, which can sometimes lead to confusion and inefficiency, especially as a company grows. Without a well-defined leadership structure, roles and responsibilities may become blurred, making it challenging to allocate authority and accountability. This ambiguity can hinder the efficient execution of tasks and the ability to respond quickly to market changes or competitive pressures. To mitigate these potential problems, Larry Page and Sergey Brin likely had to establish clear communication channels, decision-making processes, and mechanisms for conflict resolution within their partnership. Over time, as Google grew, they also had to consider transitioning to a more hierarchical organizational structure with defined leadership roles to ensure smoother operations and strategic alignment. It's worth noting that despite these challenges, Page and Brin managed to navigate them effectively during Google's early years and build a successful company. As Google evolved, they did eventually transition to a corporate structure where they maintained significant control through their roles as CEO and President of Alphabet Inc., Google's parent company. This transition allowed them to retain influence while addressing some of the challenges associated with a partnership structure. d) Discuss the advantages and disadvantages to Google of its conversion to a public limited company in 2004. [10] Google's conversion to a public limited company (PLC) in 2004 has had both advantages and disadvantages for the tech giant. This essay will explore these aspects to provide a comprehensive analysis of this transition. One significant advantage that Google gained from becoming a PLC was access to a broader pool of capital. As a private company, Google had limited options to raise funds for expansion and investment. Going public allowed them to issue shares and attract investors who wanted to own a piece of the company. This influx of capital provided Google with the financial resources needed to fuel its growth and innovate. It allowed them to acquire other companies, expand their product offerings, and invest in research and development, ultimately reinforcing their dominance in the tech industry. Another advantage of becoming a public company was enhanced brand recognition and credibility. As a PLC, Google was listed on stock exchanges, which meant that their financial information became publicly available. This increased transparency reassured potential partners and clients about the company's stability and long-term prospects. Moreover, going public helped Google build its brand image, increasing visibility and trust among consumers. The ability to tap into public markets and attract shareholders further solidified their position as a leading tech company, reaping the benefits of a strong brand and investor confidence. However, there are disadvantages that Google faced as a result of becoming a public limited company. Firstly, going public meant that Google had to comply with stricter regulatory requirements, including financial reporting, disclosure, and governance. This increased bureaucracy and compliance burdens have led to higher administrative costs. Google had to allocate significant resources to ensure compliance with regulations, diverting attention away from its core business operations. This additional burden could stifle innovation and slow down decision-making processes. Secondly, being public exposed Google to market volatility and increased scrutiny. Share prices can fluctuate based on market sentiment and perceived performance, leading to pressure from shareholders for consistent growth and profitability. The necessity to focus on short-term financial goals to appease investors may hinder longterm strategic planning. Additionally, becoming a PLC forced Google to reveal sensitive information, such as competitive strategies and financial data, potentially giving rival companies a competitive advantage. The constant public scrutiny could limit Google's ability to respond to emerging market trends and maintain its competitive edge. To conclude, Google's conversion to a public limited company in 2004 had both advantages and disadvantages. On the positive side, it provided access to a wider range of capital and enhanced the company's brand recognition and credibility. However, the transition also imposed regulatory burdens, increased administrative costs, and subjected the company to market volatility and scrutiny. Ultimately, the decision to go public entails a trade-off between the benefits of increased capital and brand image against the challenges of regulation and market pressures.
