O-LevelCommerceProduction7100/22 · May/June 2015 · Q620 Marks

Fig. 2 shows the percentage use of drinks cans in different parts of the world in 2014. PERCENTAGE SHARE OF THE TOTAL USE OF DRINKS CANS IN 2014 NORTH AMERICA 30% EUROPE 22% SOUTH AMERICA 16% ASIA 15% AFRICA 10% AUSTRALASIA 7% [Figure 2] Use Fig. 2 to help you to answer the following questions.

(a)Name one type of drinks product packaged in a can.[1]
(b)(i)120 billion drinks cans were used worldwide in 2014. Using Fig. 2, calculate the number of drinks cans used in North America. Show your working.[2]
(b)(ii)65% of all the drinks cans were used by ten multinational companies in 2014. Calculate the average number of drinks cans used by one of these companies in 2014. Show your working.[3]
(c)Explain why there are multinational companies in the worldwide drinks market.[4]
(d)(i)Sigma is a manufacturer of drinks cans. It is based in Canada. Sigma wishes to expand its market into Europe. It is considering the following options: • opening a factory in Germany, a member of the European Union, to manufacture the drinks cans • using agents to sell its drinks cans to large-scale producers of drinks. Discuss both options. Which would you recommend? Give reasons for your choice.[6]
(d)(ii)Sigma trades with buyers in Australia. Why might the distance between Canada and Australia cause difficulties for Sigma?[4]

This question uses a diagram from the original paper, which isn't shown here. Open the full paper from the past papers archive to see it.

Mark scheme

Marking points from the official mark scheme (May/June 2015). The mark or mark type is shown in brackets.

[1] (a) One mark for juice, coke, beer, tonic water, soda water
any other relevant product
[2] (b)(i) 120bn × 30/100 (1 mark)= 36 bn (1 Mark)
OFR applies. If the correct answer is given without working, award full marks
[3] (b)(ii) 120bn x 65/100 (1 mark) = 78bn (1 mark) ÷ 10 = 7.8 bn (1 mark)
OFR applies. If the correct answer is given without working, award full marks
[4] (c) Any four points × 1 mark each and up to 2 marks for a well-developed point
it is a mass market involving a large volume of items
demand for drinks comes from all over the world and is large scale
there are a number of drinks made by many companies that are suitable for being canned
it is easier to supply outlets in different parts of the world by having factories producing drinks near to these markets
many different outlets sell drinks e.g. supermarkets, cafes, fast food outlets
any other relevant point
[6] (d)(i) Level 2 (4–6 marks) Has discussed both options and has given a reasoned recommendation.
(If a candidate has discussed only one option, award 4 marks max)
If Sigma opens a factory in Germany it will benefit from location within a trading bloc. It will not have to pay import duty on any cans sent to member countries of the EU. It will also be able to obtain any necessary raw materials from member countries without payment of duty. It will also be located close to its market for beverage cans in Europe.
On the other hand Sigma will have to find a site in Germany and will have the costs of setting up the factory as well as the ongoing costs such as labour. It will also have to organise a sales team to operate in Europe. It should also be remembered that not all countries in Europe are members of the European Union and so it may be difficult to trade with them.
Using agents will save Sigma the work of locating in Europe and setting up a factory. The agent will find buyers for Sigma and will overcome some of the difficulties of trading in other countries such as language and dimensions of the cans. The agent will represent Sigma and may be better known to potential buyers than Sigma itself.
On the other hand agents work for several clients and so may not sell the beverage cans as vigorously as they might. Sigma will still have to organise the transporting and delivery of the cans, probably from Canada and this will be costly. The agent will receive commission on sales.
It is recommend that Sigma sets up the factory together with a sales office so that it can expand its market for cans in Europe itself.
Level 1 (1-3 marks) Has commented on one or both options with/without a recommendation.
The European Union is a trading bloc. If Sigma opens a factory in Germany it will benefit from this. It will not have to pay import duty on cans sold to other countries. It will also be located close to its market for beverage cans in Europe.
Sigma will, however, have to find a site in Germany. It will have the costs of setting up the factory. It will have labour and other costs.
Sigma will have to pay agents commission. I would recommend that Sigma sets up the factory so that it can expand its market for cans in Europe itself.
[4] (d)(ii) Any four points × 1 mark each and up to 2 marks for a well-developed point
the cans will have to be shipped using container ship – this could be costly and also take some time, other forms of transport will be needed to deliver the container to the port in Canada and from the port in Australia.Sales people may have to travel from Canada to Australia - cost as well as time consuming
communication may break down between buyer and seller but, with improved communication e.g. email, this is not such a problem
no insurance costs may be greater than for a short distance if a consignment is urgent
container ship may not be suitable and air freight would be expensive the use of air freight would not generally be suitable as cans are likely to be transported in bulk and individually are of low value
there may be greater risks of cargoes being lost or stolen because of distance as they are in other people's hands for longer
the product has a low value to weight.
any other relevant point