Assume DA decides to go ahead with strategy 1. Discuss the extent to which the data in Appendix 5 and other external factors could influence DA's success in country B.

Mark scheme

Marking points from the official mark scheme (May/June 2018). The mark or mark type is shown in brackets.

1. [2] Knowledge: External factors are outside the control of the business and include economic, social and political factors; Definition of terms in Appendix 1; Definition of other external factors
2. [2] Application: Reduction in rate of growth of GDP and link to spending; Rising inflation in country B and link to consumer spending; Exchange rate depreciation and consequence for DA entering country B; Impact of increase in indirect taxes on DA prices and consumer spending; Impact of reduction in direct taxes on consumer spending; Reduction in unemployment rate and impact on consumer spending
3. [6] Analysis: Rising real GDP should mean that incomes are rising and thus lead to increased demand for DA's products. Income elasticity of demand in country B will have a significant impact on extent to which demand increases; Unemployment is expected to fall as the economy grows. This may also boost sales as household incomes rise leading to sales growth; High rates of inflation can create economic instability and result in it being difficult to predict future sales and revenues. The government may have to tackle higher inflation through increasing interest rates; this could impact sales of camping equipment particularly if it is expensive; The depreciation of country A exchange rate may be beneficial to DA as they produce their equipment in country A; it will therefore become cheaper when imported into country B. This therefore allows DA to either enjoy a higher profit margin or to cut price to country B customers; High inflation will increase the price of domestically produced goods – this could also help to make DA's products more competitive; Indirect taxes are set to increase. This will add to the price of DA's products; Direct taxes are set to fall. This will increase disposable income and benefit sales
4. [6] Evaluation: Which is the most significant factor determining success?; Can DA manage the external factors to minimise their negative impacts?; Importance of internal factors as well in determining success