A-AS Level (CIE) Business Studies Paper-1: Specimen Questions with Answers 37 - 38 of 50

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Question 37


Write in Short

Short Answer▾

Discuss the importance of published account to shareholders and customers.


Financial statement objective is to provide information about the financial position of the companies to various parties that is useful to make economic decisions. Financial statement provides useful information to a wide range of users. Some of the uses of financial statements to the Shareholders and customers are-

  • To shareholders: Financial statements are used by the shareholders to assess the risk and return on their investment in a company and to take further future investment decisions based on the performance of the company.
  • To customers: Customers use financial statements to see whether a supplier can supply the goods and services in a steady manner. This is vital where the customers are largely dependent on the suppliers

Question 38


Describe in Detail


Explain the different modes of entering foreign market.


  • Export: Volume of foreign business is not large enough to justify production in the foreign market. Cost of production is high in the foreign market. Bottlenecks Foreign market is characterized by production like infrastructural problems. Many manufacturing firms being their expansion as exporters and only later switch to other modes for serving global markets
  • Licensing: It occurs when one company (the licensor) grants a license to a company in another country (the licensee) . The license agreement, may authorize him to use the licensor՚s trade name, formula, invention, process design It may also specify that the licensor will provide technical assistance and product upgrades and improvements. In return the licensee will be required to pay an upfront payment and royalty to the licensor.
  • Joint Ventures: It means joining up with foreign companies to produce or market the products or services.

There are different types of joint ventures such as:

  • Licensing/franchising arrangements.
  • Contract manufacturing.
  • Management contracts.
  • A Turnkey Contracts: A turnkey operation is an agreement by the seller to supply a buyer with a facility fully equipped and ready to be operated by the buyer՚s personnel, who would be trained by the seller. Turnkey contracts are used in the construction of large infrastructure projects such as power plants, dams, airports, road, railways etc.
  • Franchising: It is a form of licensing in which the franchisor provides the franchisee with a standard package of products as well as marketing and management systems that have proved successful in the home country. Franchising allows the franchisor (parent company) more control over how you operate your business and there is usually a franchise fee (monthly percentage of your gross sales) .
  • Management Contracts: Management contracts are means by which a company may transfer such talent - by using part of its management personnel to assist a foreign company for a specified period for a fee.

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