Grade 11 Sample Test 2 Answers
Introduction to Business Organisations
1.
Explain what a franchising arrangement is and why the Bank Manager suggested Wayne purchase a franchised printing business rather than start his own new business.
(Total 6 marks)
Franchising is the purchase of a licence to use the name, logo and trading method of an existing successful business such as McDonald’s or Burger King. This will require the payment of an initial fee, an annual royalty based upon profits made and the signing of a strict franchise contract laying down strict guidelines on operations.
Advantages of a franchise to Wayne :
• provision of training and advice by the franchisor in areas where he lacks knowledge;
• selling a recognised product with existing customer loyalty and goodwill, reducing the chances of failure and ensuring adequate demand from the start of trading;
• marketing carried out by the franchisor;
• Wayne has capital to purchase the licence and the bank would feel more secure lending on a recognised format.
The candidate:
Clearly explains the nature of a franchising arrangement and the major advantages to the franchisee, relating these to Wayne’s business shortcomings and situation.
[5 to 6 marks]
Briefly explain a franchising arrangement and identifies a limited number of advantages which may not be related to Wayne’s situation.
[3 to 4 marks]
Presents a simplistic and general response with repetition of ideas.
[1 to 2 marks]
2.
(a) Explain what is meant by a strategic alliance .
(2)
A strategic alliance is formed by firms working together on specific projects. They can share costs and profits and benefit from economies of scale, marketing and purchasing power.
The businesses do not lose their legal status and do not form new companies.
Award up to [2 marks] for a suitable answer.
(b) Analyse why the airlines decided to join together to form a strategic alliance.
(5)
The airlines joined together to form a strategic alliance to enable them to keep their independence but to also benefit from economies of scale in terms of purchasing power and marketing. They were also able to target customers collectively by encouraging them to collect loyalty points by flying with airlines in the group of companies. This is particularly useful for airlines which may cover more destinations if they join together strategically.

The answer provides an analysis of the decision to form a strategic alliance and discusses the benefits of economies of scale and maintaining their independence.
[4 to 5 marks]
The answer provides some analysis of the decision to form a strategic alliance but it may be limited in terms of the benefits of economies of scale and maintaining their independence.
[2 to 3 marks]
The answer is limited in terms of the decision to form a strategic alliance.
(1 mark)
4.
3.
Explain how the Co-operative Bank may use its Ecological Mission Statement to create competitive advantage.
(Total 6 marks)
The Co-operative Bank can use their Ecological Mission Statement to create competitive advantage in a number of ways:
• it can enable them to develop a USP for their services to broaden their customer base
• it can help them to target market segments that consider ecological issues important
– these may be niche markets or perhaps broad market segments
• it can help to motivate staff, increasing productivity and reducing staff turnover
• it can help create wider brand awareness and a positive brand association – this is likely to help build customer loyalty
• any other relevant point.
A detailed explanation of the use of the mission statement, looking at a range of areas of business activity. Business theory and terminology used appropriately throughout.
[5 to 6 marks]
A reasonable explanation of the use of the mission statement, looking at more than one area of business activity. Business theory and terminology are generally used appropriately.
[3 to 4 marks]
A limited and essentially descriptive answer.
[1 to 2 marks]
(i) Define economies of scale .
(2)
Economies of scale/economies of large-scale production can be defined as a fall in average (or unit) cost of production as the scale of production rises.
For a correct definition.
[2 marks]
For a less accurate definition – e.g.
when a fall in cost is mentioned but not specifically a fall in the AC.
[1 mark
(ii) Examine two types of economies of scale that KLM may benefit from after forming an alliance.
(4)

The possible economies of scale that KLM might benefit from are:
•
Specialization/labour economies: with a large workforce it is possible to divide up the work process according to specific skills that match the job requirements.
The combination of flights and coordination of schedules will increase efficiency and reduce costs.
•
Managerial economies: the employment of different skilled managers for different functions/departments.
• For both of the above types, efficiency and productivity will increase and, therefore, unit costs will fall.
• Purchasing economies: the benefit of bulk buying – obtaining supplies of materials and components at lower unit costs ( e.g.
fuel, food with regard to materials and entertainment systems, spare parts with regard to components).
• Financial economies: these stem from a lower cost of capital charged by the provider of finance. KLM may be able to raise cheaper sources of finance in order to cover its debt.
• Marketing economies: the costs of marketing will spread over a larger output and therefore unit marketing costs will be reduced, for example, through combined promotions.
• any other relevant economies of scale.
For a clear examination and specific application of two types economies of scale that
KLM (an airline) might benefit from.
[3 to 4 marks]
For an examination of one type of economy of scale or for a relevant list of economies of scale. The answer may not be directly related to the airline industry. For some relevant examples but no identification of specific types of economies of scale.
[1 to 2 marks]