Explain two possible reasons why VP wants to expand.

Mark scheme

Marking points from the official mark scheme (May/June 2023). The mark or mark type is shown in brackets.

1. [1] (a) (Reason) To gain higher profits for the owners as expansion will lead to increased sales in new markets abroad – leading to increased revenue
2. [1] (a) (Reason) To lower average/unit costs – gain from economies of scale – such as bulk buying of food ingredients – a discount will be received from bulk purchases
3. [1] (a) (Reason) To gain a larger share of the market – may produce a stronger brand image - might result in greater customer loyalty
4. [1] (a) (Reason) To gain more status and prestige for the owners – from the company being more well known in country Z – may be listed on stock exchanges in other countries
5. [1] (a) (Reason) To gain access to new markets/diversification – this would reduce/spread risk
6. [1] (b) (Joint venture Advantage) VP will share the risks and costs of setting up the fast-food chain in another country with its partner in the joint venture – this may help VP to borrow less capital to expand into the other country
7. [1] (b) (Joint venture Advantage) VP can gain important local knowledge about the market - easier to focus meals on local tastes – increasing demand/sales/revenue
8. [1] (b) (Joint venture Advantage) Less likely to require expensive market research to understand the fast-food market – reducing the costs of entering the new market abroad
9. [1] (b) (Joint venture Advantage) Lowering the risks of entering the new market abroad - more likely to understand local customs and tastes adapt fast-food meals to meet local demand
10. [1] (b) (Joint venture Disadvantage) It will take time and effort to find the right partner to join with in the venture – which may delay the expansion plans
11. [1] (b) (Joint venture Disadvantage) There may be management conflicts between the two businesses - leading to arguments and inefficiency - higher costs
12. [1] (b) (Joint venture Disadvantage) Profits will have to be shared – may reduce return on investment from the expansion – may not be agreeable to the shareholders of VP
13. [1] (b) (Joint venture Disadvantage) The level of expertise may not be the same in the partner business – may make the return on investment unfair
14. [1] (b) (Joint venture Disadvantage) The work and resources may not be equally shared between the two partners in the joint venture - VP may have to put more work and resources as it is the main partner in the venture
15. [1] (b) (Franchising Advantage) Saves time on expanding into the foreign market – as business operating fast-food restaurants will make the investment
16. [1] (b) (Franchising Advantage) Payment from franchise fees for using the VP brand - fee goes back to VP which may increase profits – making a return from the expansion for low investment from VP
17. [1] (b) (Franchising Advantage) Lower capital requirement - no need to raise finance for the expansion - no need to sell additional shares with possible loss of control/no bank loan required so no need to pay interest rates increasing fixed costs
18. [1] (b) (Franchising Disadvantage) Poor quality management may lead to a lowering of the reputation of the VP brand - if the franchisee in the foreign country does not maintain standard of delivering fast food in 5 minutes
19. [1] (b) (Franchising Disadvantage) Low level of control by VP Directors – over how the franchise operates the vegetarian fast-food chain
20. [1] (b) (Franchising Disadvantage) The franchisee has information about the food ingredients and recipes of VP and may use these when the franchise agreement has expired - could develop a better version and become a competitor
21. [1] (b) (Justification) Forming a joint venture is the best way to overcome the problems of entering a new fast-food market in another country which VP is unfamiliar with as this will enable VP to understand this new market by gaining knowledge from this other business. The local business will be able to advise and guide VP on the best locations to choose and the best meals to serve to meet local demand and successfully enter this market. Franchising should not be chosen as the franchisee may provide poor service and lead to a poor brand image of VP.
22. [1] (b) (Justification) Selling a franchise to businesses in the new fast-food market in another country will reduce the investment required for VP to expand. This will make it cheaper and quicker to expand into this new market while still receiving revenue from the fees charged for the franchise.