12 markseasy
(b)
State two factors that a service sector business should consider when deciding where to locate.
Business
12 questions · 60 marks · ≈ 60 min
State two factors that a service sector business should consider when deciding where to locate.
Outline two factors Alex may have considered when choosing where to locate his business.
[case-study] Alex started APB as a sole trader business 4 years ago. APB provides printing services for local businesses, such as leaflets and brochures. The business is located in large premises on an industrial estate. To meet an increase in demand, Alex plans to buy an additional printing machine. This will cost $1,800. Alex has to decide on an appropriate source of finance.
Identify two reasons why a service business may choose to locate in out-of-town premises.
State two factors that a manufacturing business should consider when deciding where to locate.
Define 'multinational company'.
Define 'government grant'
Outline two benefits to Pamela of locating her gift shop on a high street.
[case-study] Pamela is a successful entrepreneur. She is the owner of a high street gift shop selling celebration cards, toys and candy (sweets). When Pamela started her business 30 years ago, she had no help to manage the shop. She now has 5 employees. Pamela knows maintaining customer loyalty is important. She uses competitive pricing. Most of her marketing budget is spent on sales promotion. Pamela does not use e-commerce.
Do you think access to labour is the most important factor for a manufacturing business to consider when deciding where to locate a new factory? Justify your answer.
Do you think legal controls are the most important factor for a manufacturing business to consider when deciding which country to locate its operations in? Justify your answer.
Explain two reasons why choosing the right location for the new salon is important for Kolo
[case-study] Kolo owns a successful hairdressing salon in the city centre. He has 4 part-time employees. The business has made a profit in each of the last 3 years. Kolo wants to expand by opening another hairdressing salon to take advantage of the economic boom. He plans to recruit a manager for the second salon using external recruitment. Kolo has identified 2 possible candidates for the position. Information about them is shown in the table below.
Extract from Kolo’s information on the two candidates Candidate 1 Candidate 2 Experience: 5 years experience 20 years experience Qualifications: Advanced hairdressing certificate Basic hairdressing certificate Other information: Never managed a salon Uses autocratic leadership style
Extract:
Gemma’s Jewels (GJ)
Gemma set up GJ as a sole trader 5 years ago in country Z. She started by selling rings and bracelets from a rented shop. She used her own savings to start the business. The first year was successful. After this first year Gemma decided to expand by selling more expensive items of jewellery. Gemma thinks it is important to set clear business objectives. She wants her business to increase sales by 10% each year and to increase market share.
As the business grew Gemma needed more finance for a computer, inventory and working capital to avoid liquidity problems. She decided to convert the business to a private limited company and sell shares to members of her family. Gemma still owns more than 50% of the shares in GJ.
In 2019, Gemma purchased a franchise from Beautywise Jewellery. This means GJ is now only able to sell Beautywise products in its shop. GJ has to purchase all of its inventory from Beautywise and in addition pay 20% of gross profit to Beautywise. More details about the franchise are in the advertisement in Appendix 1.
Gemma has developed a website so customers can order online. Customers can also download a mobile (cell) phone app to view and order jewellery.
Gemma plans to open a second shop as a Beautywise franchise in a nearby town. She has to decide which method of sales promotion to use. GJ needs to recruit a manager for the new shop. The manager will be responsible for operating the shop and making most of the decisions about which items of inventory to buy. The manager will also need to ensure excellent customer service is provided and that the new employees are motivated and working efficiently.
{align=center} Appendix 1
{align=center} Advertisement for Beautywise Jewellery Franchise
Become a franchisee to sell Beautywise Jewellery and improve your chances of success!!
What we offer you:
{align=center} Appendix 2
{align=center} Newspaper article- Daily News
External factors affecting the jewellery market in country Z
The demand for jewellery in country Z is likely to be affected by some recent changes. Consumers are becoming more aware of the ethical issues involved in jewellery production in some countries. The exchange rate of the currency of country Z is likely to depreciate over the next 12 months. The Government is planning changes to tax rates which might reduce the effects of the current economic boom.
{align=center} Appendix 3
{align=center} Information on three possible locations for the new shop
| Annual costs | Town A | Town B | Town C |
|---|---|---|---|
| Shop rent | $45 000 per year for 5 years | $35 000 per year for 10 years | $20 000 per year for 15 years |
| Wages and salaries | $80 000 | $70 000 | $60 000 |
| Heating and lighting | $5 000 | $5 000 | $3 000 |
| Estimated gross profit | $400 000 | $300 000 | $200 000 |
Note: Franchise fee is $50 000 per year and 20% of gross profit is paid to Beautywise.
Consider the advantages and disadvantages of the three towns for the new shop shown in Appendix 3. Recommend which town Gemma should choose for the location of the new shop. Justify your answer.
Refer to the following insert when answering the question.
Extract:
Vegetable Palace (VP)
VP was started 10 years ago in country Z. It is a public limited company. VP has a chain of 500 fast-food restaurants that operate across country Z. The VP brand is famous for its vegetarian food, this means none of its meals contain meat.
VP has a head office in Main City where all the directors and senior managers work. There are many barriers to communication. Each VP restaurant has a Manager, an Assistant Manager and 50 employees who cook and serve the meals. Restaurant Managers are often very busy and they are considering delegating some of their tasks to the Assistant Managers.
The ingredients for the restaurants are ordered in bulk by head office and then distributed from its warehouse to each of the restaurants. However, some senior managers think that Restaurant Managers should purchase their own ingredients from local suppliers. This would mean the ingredients would be fresher and would allow variations in the meals served.
VP wants to expand into another country. It will choose between the two countries shown in Appendix 2. VP will also need to decide how to enter a new market in another country. It has the option of forming a joint venture with another business or franchising the VP brand. The choice of finance will need to be considered for the expansion and the amount of finance will depend on the option chosen.
{align=center} Appendix 1
{align=center} Advertisement for VP's restaurants
{align=center} Choose VP for the finest vegetarian meals. Our service is the fastest possible!
{align=center} You will receive your meal in less than 5 minutes – guaranteed!
{align=center} Delicious and varied meals for even the biggest of appetites and all at competitive prices.
{align=center} New meals are being introduced all the time.
{align=center} There is a VP restaurant near you – we look forward to serving you soon.
{align=center} Appendix 2
{align=center} Summary of the two possible countries that VP could choose to locate its new restaurants.
| Country A | Country B | |
|---|---|---|
| Raw materials | Average variable cost $6 per meal | Average variable cost $2 per meal |
| Labour | Low unemployment $10 per hour for each employee | High unemployment $5 per hour for each employee |
| Market | Many competitors Average price per meal = $20 | Few competitors Average price per meal = $10 |
{align=center} Appendix 3
{align=center} Email from VP’s Managing Director to VP’s Marketing Director
To: VP’s Marketing Director
From: VP’s Managing Director
Date: 31 March 2023
Re: Economic changes in country Z
Did you see the news this morning that interest rates will be raised from 3% to 5% later today? This will have several effects on our business in country Z.
The news also said that the exchange rate in country Z has depreciated. We will have to consider how this will affect our business, especially as we import 30% of our ingredients into country Z.
There are also new legal controls being introduced that mean we have to list all the ingredients used in each of our meals on the menu. We do reprint menus every time we change the meals, but it is something to consider.
Speak later today.
Using Appendix 2 and other information, consider the two countries VP could choose to locate its new restaurants. Which country should VP choose? Justify your answer.
Refer to the following insert when answering the question.