Paper 1 Possible Questions

M26 Paper 1 IB Business

Define Publicly held Company

A publicly held company (also known as a Public Limited Company or PLC) is an incorporated business entity that has the legal right to sell its shares to the general public via a stock exchange. It is characterized by limited liability and a clear legal distinction between the owners (shareholders) and the business itself.

State two advantages of a Publicly held company

1. Access to significant finance: They can raise vast amounts of capital by issuing shares to the general public, facilitating large-scale expansion.

2. 2. Enhanced Continuity: As a separate legal entity, the business has perpetual succession, meaning it continues to exist regardless of changes in ownership or the death of a shareholder.

State two disadvantages of a publicly held company

1. Loss of control: Original owners may lose control of the business as shares are sold to thousands of external investors, making the company vulnerable to a hostile takeover.

2. Compliance and disclosure costs: They are subject to strict legal requirements, including the publication of audited financial accounts and high costs associated with listing on a stock exchange (flotation costs).

State three features of a publicly held company

1. Limited Liability: Shareholders are only legally responsible for the debts of the company up to the amount they invested.

2. Board of Directors: The company is managed by a Board of Directors elected by shareholders to run the business on their behalf.

3. Public Accountability: The company must hold an Annual General Meeting (AGM) and publish its financial statements for public scrutiny.

Define the secondary sector

The secondary sector is the stage of production involved in the manufacturing or construction of finished products by processing raw materials (from the primary sector) into tangible goods.

Define the term capital intensive

Capital intensive refers to a production process that relies more heavily on machinery, equipment, and technology than on labor. The proportion of capital costs is significantly higher than labor costs.

Define economies of scale

Economies of scale are the cost advantages (a decrease in the average cost per unit) that a business achieves as its scale of operation or output increases.

What are ethical objectives

Ethical objectives are the goals set by an organization based on a set of moral values or beliefs. They guide the business to act in a socially responsible manner, such as treating employees fairly or minimizing environmental impact.

Define the term CSR

Corporate Social Responsibility (CSR) is the concept where businesses consider the interests of society by taking responsibility for the impact of their decisions and activities on customers, employees, communities, and the environment.

Explain what a Circular business model is

A circular business model is one where the production and consumption system is designed to minimize waste by keeping resources in use for as long as possible. It focuses on reusing, repairing, refurbishing, and recycling materials, moving away from the traditional 'take-make-dispose' mindset.

Explain what a linear business model is

A traditional business model . This model focuses on high-volume production, low costs, and high waste generation, often leading to resource depletion and environmental damage

Explain the circular supply model is

Type of Circular business model that focusses on replacing scares and natural resources with renewable, recyclable, and or biodegradable resource inputs.

Explain the resource recovery model

The resource recovery model focuses on the 'end' of the product life cycle. It involves reclaiming value from discarded products or waste streams to be reused in new production cycles, effectively eliminating the concept of 'waste.'

Define the term partnership

A partnership is a type of unincorporated private sector business owned by two or more people (usually up to 20) who share the responsibilities, risks, and profits of the business. Partners typically have unlimited liability.

Define the term brand position

Brand position (or positioning) is the strategic process of creating a distinct image and identity for a product or brand in the minds of consumers relative to its competitors, often based on attributes like price, quality, or benefits.

Explain Diversification

Diversification is a high-risk growth strategy (from the Ansoff Matrix) where a business markets completely new products in completely new markets. It allows a firm to spread risks across different industries.

Define Market growth

Market growth is the percentage increase in the total sales volume or value of a specific market over a given period. It indicates whether a market is expanding or contracting.

Define Stakeholders

Stakeholders are any individuals, groups, or organizations that have a direct interest in, or are affected by, the activities and performance of a business. They can be internal (employees, managers) or external (customers, suppliers, government).

Define Pressure groups

Pressure groups are non-profit organizations or collectives that seek to influence business behavior or government policy regarding specific causes, such as environmental protection or animal rights.

Define market share

Market share is the proportion of total sales in a specific market that is accounted for by a particular business, usually expressed as a percentage of total market value or volume.

Define market leadership

Market leadership refers to the position of the business with the largest market share in a specific industry. The market leader often influences price changes and the pace of innovation.

State two advantages of market leadership

1. Brand recognition: The leader often enjoys high levels of consumer loyalty and trust, which can act as a barrier to entry for competitors.

2. Price Leadership: The leader has more power to set prices, as competitors often follow their pricing cues.

State two disadvantages of market leadership

1. Constant scrutiny: Leaders are often targeted by pressure groups, regulators (monopoly commissions), and aggressive competitors.

2. Complacency risk: Dominant firms may become 'lazy' regarding innovation or cost-cutting, allowing smaller, agile firms to disrupt the market.

Define the 7 P’s of the marketing mix

1. Product: The physical good or intangible service offered to satisfy a customer’s needs or wants. 2. Price: The amount of money paid by customers to purchase the product, reflecting its value and the business's pricing strategy. 3. Promotion: The methods used to communicate information about the product to the target audience (e.g., advertising, PR). 4. Place: The distribution channels and locations used to make the product available to the consumer. 5. People: The employees who interact with customers, whose behavior and expertise significantly impact the customer’s perception of the service. 6. Process: The procedures, mechanisms, and flow of activities by which a service is delivered to the customer. 7. Physical Evidence: The tangible cues or environment (e.g., branding, packaging, store layout) that allow customers to evaluate a service before or during purchase.

Define the term product portfolio

A product portfolio is the entire range of products or strategic business units (SBUs) that a company offers to its customers.

Define the term premium pricing

Premium pricing is a strategy where a business sets a price significantly higher than the market average to reinforce a perception of high quality, luxury, or exclusivity.

Give 3 pros of premium pricing

1. High profit margins: Each unit sold yields a high return. 2. Brand image: It builds a 'prestige' identity for the brand. 3. Market Segmentation: It targets high-income consumers who are less price-sensitive.

Give 3 cons of premium pricing

1. Limited market size: The high price excludes a large portion of potential customers.

2. High marketing costs: Significant investment is required to maintain the 'luxury' image.

3. Higher Expectations

Define Business to Business (B2B)

B2B refers to commercial transactions or marketing activities directed from one business to another, rather than from a business to an individual consumer (B2C).

State 3 features of B2B

1. Large transaction values: Purchases often involve bulk orders or high-cost industrial machinery. 2. Complex decision-making: Buying decisions usually involve multiple stakeholders or professional purchasing departments. 3. Long-term relationships: Transactions are often based on ongoing contracts and mutual trust rather than impulse.

Give 3 advantages of B2B

1. Predictable revenue: Long-term contracts provide financial stability.

2. Lower per-customer marketing costs: Effort is focused on a few high-value clients rather than the mass market.

3. Stability: Demand is often more stable than in volatile consumer markets.

4. lower inventory costs

Give 3 disadvantages of B2B

1. Smaller customer base: Losing a single client can significantly impact total revenue.

2. Longer sales cycles: Negotiating contracts and technical specifications can take months or years.

3. Power of buyers: Large corporate buyers often have significant bargaining power to demand lower prices.

Explain the role of market research to help determine market growth

Market research gathers data on consumer trends, competitor behavior, and economic indicators. By analyzing historical sales data and forecasting future demand, it allows a business to calculate if the total market size is expanding, helping them decide whether to invest more capital or exit the industry.

Differentiate between market oriented and product oriented business approach

Market Orientation: An outward-looking approach where the business focuses on identifying and meeting the specific needs and wants of consumers through market research before developing a product. Product Orientation: An inward-looking approach where the business focuses on the product itself (quality or innovation) and assumes that if they make a 'good' product, customers will buy it.

Define Job production

Job production involves the manufacturing of unique, individual, or 'one-off' products specifically designed to meet a customer's particular requirements (e.g., a custom wedding dress or a bridge).

Define Mass production

Mass production is the manufacturing of large quantities of standardized products, typically using assembly lines and automation to achieve high output and low unit costs.

State two advantages of Mass production

1. Economies of scale: High volume leads to low average costs per unit. 2. Consistency: Automation ensures that every product is identical in quality and specification.

State two disadvantages of Mass production

1. High initial costs: Setting up assembly lines and purchasing specialized machinery requires massive capital investment. 2. Demotivation: Workers often perform repetitive, unskilled tasks, leading to low morale and high labor turnover.

Define Mass customization

Mass customization is a production method that combines the flexibility and personalization of custom-made products with the low unit costs associated with mass production, often using computer-aided manufacturing.

Explain methods of processing gold and other raw materials

In the context of the IB syllabus (specifically regarding sustainability), this involves extraction (mining), refining (separating the metal from ore using chemical or heat processes), and manufacturing into final products. This is often discussed in terms of environmental impact and the need for e-waste recovery.

Define e-waste recovery

E-waste recovery is the process of collecting and recycling discarded electronic devices to extract valuable materials (like gold, copper, and silver) to be reused, preventing toxic substances from entering landfills.

Define efficiency

Efficiency is a measure of how well a business uses its resources (inputs) to produce output. It is often calculated by looking at the cost per unit or the productivity of labor and capital.

Define Lean production

Lean production is an approach to operations management that focuses on eliminating all forms of waste (e.g., overproduction, waiting time, defects) while ensuring high-quality output to improve efficiency and reduce costs.

Define Just-in-Time (JIT) production

JIT is a lean production technique where materials and components are delivered to the production line exactly when they are needed, eliminating the need to hold large buffer stocks.

Define Just-in-case (JIC) production

JIC is a traditional production method where businesses hold large quantities of stock (raw materials and finished goods) to ensure they can meet unexpected surges in demand or cope with supply chain disruptions.

Define the term profit margin

A profit margin is a financial ratio that expresses a business's profit as a percentage of its sales revenue. Common types include the Gross Profit Margin (GPM) and Net Profit Margin (NPM).

Define bulk-buying

Bulk-buying is a form of purchasing economy of scale where a business receives discounts from suppliers for buying large quantities of raw materials or stock, thus reducing the average cost of those inputs.

Define Share Capital

Share capital is the permanent source of finance for a limited company, raised by selling shares to individual or institutional investors.

Define Leasing

Leasing is a source of finance where a business (the lessee) pays a periodic fee to use an asset (like machinery or vehicles) owned by a third party (the lessor), avoiding the need for a large upfront purchase cost.

Define Bank overdraft

A bank overdraft is a flexible, short-term source of finance that allows a business to withdraw more money from its bank account than it actually has, up to an agreed limit. Interest is only paid on the amount overdrawn.

Define Crowdfunding

Crowdfunding is a method of raising finance by asking a large number of people (the 'crowd') to contribute a small amount of money each, usually via an online platform.

Define Business angels

Business angels are wealthy private individuals who provide capital to high-growth potential startups in exchange for an equity stake (ownership) in the business and often provide mentoring.

Define Trade Credit

Trade credit is a short-term source of finance where a business buys goods or services from a supplier and pays for them at a later date (e.g., 30, 60, or 90 days).

Define investment appraisal

Investment appraisal refers to a set of quantitative techniques used by a business to evaluate the financial feasibility of a potential capital investment project. These include: Payback Period: Time taken to recover the initial cost. Average Rate of Return (ARR): The annual profit as a percentage of the initial investment. Net Present Value (NPV): The total value of future cash flows discounted to today’s value.

Explain different sources of finance

Sources of finance are the various ways a business can obtain the money it needs to operate or expand. Internal: Generated from within the business (e.g., retained profit, sale of assets). External: Obtained from outside the business (e.g., bank loans, share capital, venture capital, leasing). Short-term: Used for day-to-day operations (e.g., overdrafts, trade credit). Long-term: Used for major capital expenditure (e.g., mortgages, debentures).

Explain the profitability ratios

Profitability ratios measure a firm’s ability to generate profit relative to its sales revenue or capital employed. The main ratios include Gross Profit Margin ($(\text{Gross Profit} / \text{Revenue}) \times 100$) and Net Profit Margin ($(\text{Net Profit} / \text{Revenue}) \times 100$).

Define Internal (organic) growth

Internal growth occurs when a business expands using its own resources, such as increasing sales through new product development, entering new markets, or increasing production capacity.

Give two advantages of internal growth

1. Lower Risk: Growth is usually funded by retained profits and is easier to manage than merging with another firm. 2. Culture Maintenance: The business retains its original culture and management style without the 'clash' of a merger.

Give two disadvantages of internal growth

1. Slow Pace: It takes much longer to gain market share compared to buying a competitor. 2. Limited Scale: Growth is constrained by the firm's internal financial and managerial resources.

Define External (inorganic) growth

External growth occurs when a business expands by involving outside organizations, specifically through mergers, acquisitions (takeovers), joint ventures, or strategic alliances.

Give two advantages of external growth

1. Speed: It allows a business to rapidly increase market share and gain access to new brands or technologies. 2. Synergy: The combined business may be more efficient or profitable than the two separate entities (the '$1 + 1 = 3$' effect).

Give two disadvantages of external growth

1. High Cost: Takeovers are often very expensive and may involve taking on significant debt. 2. Culture Clash: Differences in corporate culture and management styles can lead to conflict and inefficiency.

Explain financial and non-financial rewards

Financial rewards: Monetary incentives used to motivate employees, such as wages, salaries, commission, profit-related pay, or bonuses. Non-financial rewards: Non-monetary incentives used to motivate, such as job enrichment, job enlargement, team working, and empowerment.

Explain the term training

Training is the process of providing opportunities for workers to acquire new skills or improve existing ones related to their jobs. It can be on-the-job (at the workplace) or off-the-job (external courses).

Explain the term recruitment

Recruitment is the process of identifying the need for a new employee, defining the job requirements, advertising the position, and attracting a pool of qualified candidates to apply.

Define the term gig-economy

The gig economy is a labor market characterized by the prevalence of short-term contracts or freelance work as opposed to permanent jobs. It relies heavily on digital platforms to connect workers with customers.

Define Just-in-Time production

Just-in-Time (JIT) is a lean production method that involves holding little or no stock. Resources and components are ordered and delivered only when they are needed in the production process, and finished goods are produced only when there is a customer order. It relies on high-quality relationships with suppliers and a flexible workforce.

Define Just-in-case production

Just-in-case (JIC) is a traditional manufacturing strategy where businesses maintain large 'buffer' stocks of raw materials and finished goods to ensure that production and sales are not interrupted by supply chain delays or unexpected surges in demand.

Define Stakeholders

Stakeholders are any individuals, groups, or organizations that have a direct interest in, or are affected by, the activities and performance of a business. They can be classified as internal (e.g., employees, shareholders, managers) or external (e.g., customers, suppliers, government, local community).

Define Pressure groups

Pressure groups are non-profit organizations or collectives that seek to influence business behavior or government policy regarding specific causes, such as environmental protection, worker rights, or animal welfare, often through direct action or lobbying.

Explain financial and non-financial rewards

Financial rewards: Monetary incentives used to motivate employees. These include basic salary, hourly wages, commission (payment per sale), and performance-related pay (bonuses). Non-financial rewards: Methods of motivation that do not involve direct monetary payment. These focus on the psychological needs of the worker, such as job enrichment (giving more complex tasks), job enlargement (giving more tasks of the same level), and empowerment (giving workers authority to make decisions).

Explain the term training

Training is the process of providing opportunities for workers to acquire new skills or improve existing ones. It is designed to increase efficiency and productivity. On-the-job training: Occurs at the workplace while the employee is performing their duties (e.g., mentoring). Off-the-job training: Occurs away from the workplace, often led by external specialists (e.g., university courses or workshops).

Explain the term recruitment

Recruitment is the process of identifying the need for a new employee, defining the job (job description) and the person required (person specification), and attracting a pool of qualified candidates to apply for the vacancy. This is followed by the selection process.

Define the term gig-economy

The gig economy refers to a labor market characterized by the prevalence of short-term contracts or freelance work, rather than permanent, full-time employment. It is often facilitated by digital platforms that connect independent workers with customers for specific 'gigs' or tasks.

Define investment appraisal

Investment appraisal refers to a set of quantitative techniques used by a business to evaluate the financial feasibility of a potential capital investment project. These include: Payback Period: Time taken to recover the initial cost. Average Rate of Return (ARR): The annual profit as a percentage of the initial investment. Net Present Value (NPV): The total value of future cash flows discounted to today’s value.

Explain different sources of finance

Sources of finance are the various ways a business can obtain the money it needs to operate or expand. Internal: Generated from within the business (e.g., retained profit, sale of assets). External: Obtained from outside the business (e.g., bank loans, share capital, venture capital, leasing). Short-term: Used for day-to-day operations (e.g., overdrafts, trade credit). Long-term: Used for major capital expenditure (e.g., mortgages, debentures).

Explain the role of market research to help determine market growth

Market research involves the systematic collection and analysis of data regarding consumers and competitors. By identifying trends, changes in consumer tastes, and the entry of new competitors, research allows a business to calculate if the total volume or value of a market is increasing over time, thereby determining its growth potential.

Differentiate between market oriented and product oriented business approach

Market Orientation: An outward-looking approach where the business focuses on identifying and meeting the specific needs and wants of consumers through market research before developing the product. Product Orientation: An inward-looking approach where the business focuses on the product’s quality or innovation first, assuming that the technical superiority of the product will automatically attract customers.

Explain methods of processing gold and other raw materials

In the IB Business context, this relates to operations management and sustainability. It involves the extraction of raw materials (primary sector), followed by refining or smelting (secondary sector). For gold, this specifically involves separation from ore, which is often discussed in terms of the environmental impact (CSR) and the benefits of resource recovery (recycling gold from electronics).

Define efficiency

Efficiency is a measure of how well a business uses its inputs (land, labor, capital) to produce outputs. It is often measured by calculating the cost per unit or the rate of productivity (output per worker).

Define Lean production

Lean production is a holistic philosophy of operations management centered on the systematic elimination of waste (Muda) in all forms—such as defects, overproduction, and waiting time—to improve efficiency and add value for the customer.

Define Job production

Job production involves the manufacturing of unique, custom-made items, one at a time, to meet the specific requirements of an individual customer (e.g., a custom-built house).

Define Mass customization

Mass customization is a production process that utilizes the low unit costs of mass production while still allowing for individual customer modifications, usually through advanced computer-aided manufacturing (CAM).

Define Business to Business (B2B)

B2B refers to commercial transactions or marketing activities between two businesses, such as a manufacturer selling components to an assembly plant, rather than between a business and an individual consumer.

State 3 features of B2B

1. Complex decision-making: Purchases involve multiple professional stakeholders and procurement departments. 2. Large transaction values: Sales typically involve bulk orders or high-cost industrial equipment. 3. Focus on technical specifications: Buying decisions are based on logic, efficiency, and precise product data rather than emotion.

Give 3 advantages of B2B

1. Stability and predictability: Long-term contracts lead to more reliable cash flow. 2. Lower marketing costs per unit: Efforts are focused on a small number of high-value clients. 3. Greater loyalty: Strong technical and professional relationships make it harder for clients to switch to competitors.

Give 3 disadvantages of B2B

1. High bargaining power of buyers: Large corporate clients can demand significant discounts.

2. Longer sales cycles: Negotiating contracts and technical requirements can take several months.

3. Concentration risk: Losing a single major client can have a devastating impact on the business’s total revenue.

State two disadvantages of market leadership

1. Constant scrutiny: Leaders are often targeted by pressure groups, regulators (monopoly commissions), and aggressive competitors.

2. Complacency risk: Dominant firms may become 'lazy' regarding innovation or cost-cutting, allowing smaller, agile firms to disrupt the market.