KLG is based in country X. It specialises in making electrical parts which it sells to washing machine manufacturers in country X. The Managing Director is planning to relocate to country Y, which is a low-cost country. She said: 'This will allow us to pay employees low wages for working long hours as there are few legal controls on employment and health and safety. KLG cannot be both ethical and profitable. Changes in exchange rates and import tariffs might cause us problems when we start exporting.'

Mark scheme

Marking points from the official mark scheme (May/June 2016). The mark or mark type is shown in brackets.

1. [2] Good knowledge – tax on goods brought into a country.
2. [1] Some knowledge – e.g. Tax on goods/imports OR increases cost of a product.
3. [1] Application [2 × 1] - award 1 mark for each benefit.
4. [1] Workers are quicker at producing goods/increased productivity or efficiency/higher output
5. [1] Lower (unit) cost/benefit from economies of scale
6. [1] Every worker focuses on what they are good at/become expert
7. [1] Improved quality or accuracy or less wastage
8. [1] More competitive.
9. [2] Knowledge [2] – award up to 2 marks for each relevant point/knowledge of exchange rates [max 2].
10. [2] Application [2] – award up to 2 marks for relevant explanation in context.
11. [1] Points might include: Depreciation: Good if KLG exports as other countries' currencies are worth more/lower prices [k] could increase factory sales [app]
12. [1] Could benefit from higher profit margin if choose not to drop the price when currency of home country depreciates [k].
13. [1] Appreciation: Exports become more expensive/prices rise [k] so fewer (overseas) washing machine manufacturers place orders [app]
14. [1] May have to reduce profit margins [k] as prices rise so reducing benefit of paying low wages [app].
15. [1] General: Fluctuations make it difficult to plan/budget [k] so difficult to set prices for its electrical parts [app].
16. [1] Knowledge [2 × 1] - identification of relevant factor [max 2].
17. [1] Application [2 × 1] – award 1 mark if relevant reference made to this business.
18. [1] Analysis [2 × 1] - award 1 mark for each relevant explanation. Relevant points might include: Infrastructure (accept only once) e.g. Utilities, communications [k]
19. [1] Close to market [k] as need to be near washing machine manufacturers [app] so can keep transport costs low [an]
20. [1] Land issues e.g. Availability/cost of suitable land [k] for (new) factory [app]
21. [1] Government e.g. Regulations, taxes, quotas, assistance [k]
22. [1] Competitors [k] as loyalty to an existing supplier [app] could mean it is difficult to gain customers [an]
23. [1] Transport links [k] as need to get its products to country X [app]
24. [1] Labour issues e.g. Cost/access to suitable/skilled /enough employees [k]
25. [1] Language problems [k]
26. [1] Lack of local knowledge/cultural issues [k]
27. [1] Access to raw materials/components [k] as need metal/plastic [app].
28. [1] Knowledge [1] – award 1 mark for identification of relevant issue(s) [max 1].
29. [1] Application [1] – award 1 mark if relevant reference made to this business.
30. [2] Analysis [2] – award up to 2 marks for relevant development of point(s).
31. [2] Evaluation [2] – justified decision made as to whether KLG cannot be both ethical and profitable.
32. [1] Relevant points might include: Additional costs [k] so profit (margin) might fall [an] unless increase prices [an] of electrical parts [app]
33. [1] Enhance reputation/act as free promotion [k] so could appeal to washing machine manufacturers [app] so may pay more [an] which could more than cover the additional costs [an]
34. [1] Damage to reputation [k] leading to a customer boycott [an] reducing revenue [an]
35. [1] Some workers may only want to work for an ethical business [k] so easier to attract/motivate employees [an] in its factory [app]
36. [1] May not be seen as a caring employer [k] increasing absenteeism/labour turnover [an]
37. [1] Materials purchased from unethical suppliers may cost less [k].