2023 Cambridge IGCSE Enterprise (0454) Practice Paper with Answers

(a) Negotiation is a process of discussion between two or more parties aimed at reaching an agreement or resolving a conflict where there are both shared and opposing interests.

(b) Two stages of the negotiation process are:
1. Preparation and Planning: This involves gathering information, setting objectives (such as the target price and limit), and planning the strategy before the meeting starts.
2. Proposal and Bargaining: This is the active stage where both parties make offers, state their positions, and discuss concessions (such as price reductions or minimum order quantities) to find common ground.

(c) Compromise involves both parties making concessions to reach an agreement. In this scenario, Tariq wants a price of $12 and the supplier wants $16. Tariq could offer to pay $14 per hoodie, which is halfway between their positions. Alternatively, Tariq could agree to purchase a larger quantity, such as 75 hoodies instead of 50, in exchange for the supplier lowering the price to $13 per hoodie. This allows the supplier to secure a larger order while Tariq gets a discount.

(a) [2 marks]
- 1 mark for showing basic understanding of discussion/communication to reach an agreement.
- 2 marks for a complete definition (e.g., communication between two or more parties to reach a mutually acceptable agreement/resolve a conflict).

(b) [4 marks]
For each of two stages:
- 1 mark for identifying a correct stage (e.g., Preparation, Opening, Testing, Proposals/Bargaining, Agreement/Closing).
- 1 mark for a description of what occurs during that stage.
(Maximum 2 marks per stage * 2 = 4 marks)

(c) [4 marks]
- 1 mark for explaining what 'compromise' means (making concessions/giving something up).
- 1 mark for explaining how compromise leads to a mutually beneficial outcome (win-win/agreement).
- 2 marks for application to the scenario (e.g., adjusting the price to $14, or increasing the quantity of hoodies ordered to get a lower unit price).

(a) Two informal sources of support are:
1. Friends and family
2. Other local business owners (or teachers)

(b) A business mentor can share their real-world experience and knowledge of the industry. This could help Maya structure her business plan correctly and avoid common startup mistakes, saving her time and money.

(c) Advantage:
A government agency can provide reliable, accurate, and up-to-date legal and regulatory guidance regarding chemical safety standards for cosmetics. This ensures Maya's soaps comply with the law, preventing legal penalties or shutdowns.

Disadvantage:
Government agencies can be highly bureaucratic and slow to respond. This might delay Maya's launch because processing registrations or getting answers to safety questions can take weeks or months.

(a) [2 marks]
- 1 mark for each correct example of an informal source (e.g., friends, family, teachers, peers, local business owners). (Max 2 marks)

(b) [2 marks]
- 1 mark for identifying a way a mentor helps (e.g., sharing experience, giving feedback, networking).
- 1 mark for explaining how this benefits Maya's soap enterprise (e.g., improving her business plan, avoiding mistakes).

(c) [6 marks]
Advantage:
- 1 mark for identifying a valid advantage of a government agency (e.g., reliable information, free advice, grants).
- 1 mark for developing the explanation of the advantage.
- 1 mark for applying to Maya's situation (e.g., chemical safety compliance).
Disadvantage:
- 1 mark for identifying a valid disadvantage (e.g., slow response time, rigid rules, lots of paperwork).
- 1 mark for developing the explanation of the disadvantage.
- 1 mark for applying to Maya's situation (e.g., delaying her business startup/launch).

(a) Two skills of enterprising people demonstrated are:
1. Problem-solving
2. Adaptability/Flexibility (or Resourcefulness / Creativity)

(b) Problem-solving involves identifying a challenge, generating solutions, and taking action. In this scenario:
1. Leo and Priya identified the problem: their blender broke, which meant they could not make juice.
2. Priya generated an alternative solution: switching to hand-squeezed lemonade, which does not require a blender.
3. They took rapid action by purchasing lemon ingredients from a nearby market, allowing the stall to remain open and continue making sales.

(c) Taking calculated risks is important because starting a new enterprise always involves uncertainty, and progress cannot be made without taking some risks (such as investing money in inventory). However, a 'calculated' risk means the entrepreneur carefully evaluates the potential losses against the potential rewards before acting. This allows the enterprise to seize opportunities and grow while minimizing the chance of unexpected financial failure.

(a) [2 marks]
- 1 mark for each correct enterprising skill identified (e.g., problem-solving, adaptability, flexibility, resourcefulness, creativity, initiative). (Max 2 marks)

(b) [4 marks]
- 1-2 marks for describing the steps of a problem-solving process (identifying problem, finding solutions, taking action).
- 1-2 marks for application to the scenario (broken blender, switching to lemonade, purchasing ingredients from the local market).

(c) [4 marks]
- 1 mark for defining 'calculated risk' (assessing pros/cons or potential losses vs rewards before acting).
- 1 mark for explaining why taking risks is necessary (e.g., uncertainty in business, to gain profit/market share).
- 2 marks for explaining why evaluating/calculating these risks leads to success (e.g., avoids complete failure, ensures decisions are based on data/research rather than luck).

(a) A fixed cost is an expense that does not change with the level of output or sales produced by the enterprise (e.g., rent, advertising).

(b) Contribution per unit = Selling price - Variable cost per unit
\(\text{Contribution} = \\$3.00 - \\$1.20 = \\$1.80\) per keyring.

(c) Break-even point = Fixed costs / Contribution per unit
\(\text{Break-even point} = \frac{\\$90.00}{\\$1.80} = 50\) units (keyrings).

(d) Two actions to reduce the break-even point:
1. Increase the selling price per keyring: If the selling price increases to say $3.50, the contribution per unit increases, meaning fewer keyrings need to be sold to cover the $90 fixed costs.
2. Reduce the fixed costs: The club could negotiate a lower rent for the tool or reduce advertising spending, which directly reduces the total fixed costs that must be covered, lowering the break-even point.

(a) [2 marks]
- 1 mark for showing basic understanding (e.g., costs that must be paid).
- 2 marks for a clear definition showing relationship to output (costs that do not vary with the level of production/output).

(b) [2 marks]
- 1 mark for correct formula or working: \(\\$3.00 - \\$1.20\).
- 1 mark for correct answer with currency: \(\\$1.80\).

(c) [2 marks]
- 1 mark for correct formula or working: \(\frac{\\$90.00}{\text{Contribution}}\) or \(\frac{\\$90.00}{\\$1.80}\).
- 1 mark for correct answer: 50 units (or 50 keyrings).

(d) [4 marks]
For each of two actions:
- 1 mark for identifying a valid action (e.g., increase selling price, reduce variable costs/cheaper materials, reduce fixed costs/cheaper rent).
- 1 mark for explaining how this action reduces the break-even point (e.g., increases contribution per unit, or reduces total revenue required to cover costs).

(a) Risk is the probability or chance of an adverse event, loss, damage, or failure occurring as a result of a decision or action.

(b) Two methods Sofia could use to identify risks are:
1. Conducting a SWOT analysis (specifically looking at Threats).
2. Conducting research or interviewing experienced pet-care professionals (or brainstorming).

(c) Two ways to manage or mitigate the risk of a dog escaping:
1. Risk Reduction (Mitigation): Sofia can invest in high-quality double-clip safety harnesses and keep the dogs on a leash at all times in public spaces. This directly reduces the likelihood of a dog slipping away.
2. Risk Avoidance: Sofia could refuse to walk high-risk dogs (e.g., dogs with a known aggressive history or those known to escape yards) or refuse to walk dogs in unfenced off-leash areas. This completely eliminates the exposure to that specific high-risk scenario.

(a) [2 marks]
- 1 mark for basic understanding (e.g., something bad happening).
- 2 marks for full definition (the possibility of loss, damage, injury, or business failure).

(b) [2 marks]
- 1 mark for each valid risk-identification method listed (e.g., SWOT analysis, brainstorming, questionnaires/interviews, looking at competitors, checklists). (Max 2 marks)

(c) [6 marks]
For each of two ways:
- 1 mark for identifying a valid risk management strategy (e.g., Risk Reduction/Mitigation, Risk Avoidance, Risk Transfer).
- 1 mark for explaining how the strategy works in general.
- 1 mark for applying it specifically to the dog-escaping scenario (e.g., using secure double-harnesses, avoiding off-leash parks).
(Max 3 marks per way * 2 = 6 marks)

To answer this question effectively, candidates must discuss their own enterprise project negotiation.

Example of a strong response:
For our school food-stall enterprise, we negotiated with a local bakery to supply cupcakes at a wholesale rate. Our preparation involved:
1. Setting a target price of $0.80 per cupcake and a walk-away price (limit) of $1.00.
2. Researching competitor prices to use as leverage.
3. Determining our BATNA, which was buying cupcakes from a local supermarket at $1.10.

Evaluation of effectiveness:
The preparation was highly effective. Knowing our walk-away price and BATNA gave us confidence. When the supplier initially offered $1.20, we immediately pointed out competitor prices of $0.95, which forced them to lower their offer to $0.90. Because we prepared our data beforehand, we secured a profitable agreement. However, we failed to prepare for delivery terms, meaning we had to collect the cupcakes ourselves, which increased our transport costs. Overall, while our financial preparation was excellent and saved us money, our logistical preparation was lacking and reduced some of the negotiation's overall benefits.

Level 4 (9-10 marks):
Candidates show a clear, balanced evaluation of how effective their preparation was overall, linking specific preparation techniques to the final outcome. A justified conclusion is provided.

Level 3 (6-8 marks):
Candidates analyze the impact of their preparation on the negotiation. They explain how specific elements of preparation (or lack of preparation) helped or hindered the process. Clear application to their own project.

Level 2 (3-5 marks):
Candidates apply negotiation concepts (e.g., setting limits, preparation of facts, win-win outcomes) to their own enterprise project context.

Level 1 (1-2 marks):
Candidates demonstrate basic knowledge of negotiation preparation (e.g., listing steps like finding a venue or setting a price) without applying it effectively to their own project.

Analysis of Social Media Influencers:
- Pros: Teenagers are highly active on platforms like Instagram and TikTok, making this a highly targeted approach. Influencers can show visual close-ups of the handmade jewelry, building trust and aspirational value.
- Cons: Micro-influencers might still charge fees or demand free products, which increases launch costs. There is no guarantee that their followers reside in Zari's local delivery area.

Analysis of School Flyers:
- Pros: Very low-cost method to print and distribute directly to the target demographic. It ensures local geographic reach.
- Cons: Teenagers are likely to discard paper flyers immediately, leading to high waste and low conversion rates. It does not convey the dynamic, fashionable image of jewelry as well as digital media.

Recommendation / Evaluation:
Zari should choose social media influencers. Although distributing flyers is cheaper, teenagers are highly visual and peer-driven, meaning they are far more likely to buy jewelry after seeing it worn by an influencer they trust online than from a piece of paper. To manage costs, Zari can partner with small, local 'micro-influencers' by offering them free jewelry instead of cash payments, ensuring high-impact targeted marketing with minimal financial risk.

Level 4 (9-10 marks):
Candidate provides a balanced evaluation of both methods in context (jewelry, teenagers) and makes a clear, fully justified recommendation of which option is better for a successful launch.

Level 3 (6-8 marks):
Candidate analyzes both options in relation to the target market (teenagers) and product (handmade jewelry), explaining the benefits and drawbacks of each.

Level 2 (3-5 marks):
Candidate applies knowledge of marketing communication methods to the scenario (e.g., pointing out that teenagers use social media or that jewelry is visual).

Level 1 (1-2 marks):
Candidate demonstrates basic knowledge of marketing communications (e.g., defines flyers or social media) with little or no application to the scenario.

In answering this question, candidates should reflect on their own enterprise project. An effective response should include: 1. Identification of formal sources (e.g., teachers, local business advisors, financial institutions, government support agencies) and informal sources (e.g., family, friends, classmates, experienced local entrepreneurs) used. 2. Analysis of the benefits and limitations of these sources. For example, informal support (like family) is highly accessible, free, and fast, but may lack professional/specialist expertise or objectivity. Formal support (like a professional accountant or teacher) provides accurate, reliable, and expert advice, but can be expensive, slower to access, or bound by strict guidelines. 3. Evaluation of how these sources directly impacted the enterprise's decision-making and problem-solving. For instance, a candidate might explain how advice from a teacher (formal) helped them correctly format their cash flow forecast to secure a loan, while feedback from peers (informal) helped refine their product packaging design quickly. 4. A justified conclusion summarizing which type of support was more critical to their overall success, or explaining why a balanced combination of both formal and informal support is essential for a startup enterprise.

Level 4 (13-15 marks): Detailed, two-sided evaluation of both formal and informal sources of help and support, explicitly linked to the candidate's own enterprise project. The response includes a well-justified judgment/conclusion regarding the relative effectiveness of these sources. Level 3 (8-12 marks): Analysis of the benefits and limitations of formal and/or informal sources of support, with clear application to the candidate's own enterprise project. Points are developed to show how the support affected outcomes. Level 2 (4-7 marks): Description of the sources of help and support used in the candidate's own enterprise project, showing application but lacking deep analysis or evaluation of their overall effectiveness. Level 1 (1-3 marks): General knowledge of formal and informal sources of help and support, with little or no reference to the candidate's own project. Level 0 (0 marks): No response or response not worthy of credit.

An effective response must analyze the planning stage of negotiation and compare it to at least one other stage (such as the actual discussion/meeting, proposal/bargaining, or agreement/closure stage) within the context of Jamila's candle enterprise. 1. Planning Stage: This involves setting clear objectives (e.g., target 30% discount, limit 35%), establishing a BATNA (Best Alternative to a Negotiated Agreement, such as selling online or through another boutique), and researching Eco-Home's priorities (e.g., eco-friendly trends). Thorough planning prevents Jamila from accepting a bad deal (like the 45% discount and sale-or-return terms) out of pressure, and ensures she has strong evidence (e.g., her cost of production) to support her arguments. 2. Discussion & Bargaining Stages: During the meeting, real-time communication skills, active listening, and body language are vital. Jamila must present her arguments persuasively and respond to the buyer's objections. Even with perfect planning, if she cannot communicate confidently, she might fail. In the bargaining stage, flexibility is key. She may need to offer compromises (e.g., a 35% discount if they buy a larger initial volume) which requires quick thinking on her feet. 3. Agreement & Closure: Ensuring terms are written down accurately to avoid future misunderstandings. 4. Synthesis and Evaluation: The candidate must weigh these stages. A strong evaluation would argue that while excellent interpersonal skills and flexibility during the live bargaining session are essential, they are entirely dependent on the planning stage. Without clear limits and a BATNA set in the planning stage, Jamila could easily be pressured into an unprofitable deal. Therefore, planning is the foundation upon which all other stages of negotiation succeed.

Level 4 (13-15 marks): Candidates provide a balanced evaluation of the planning stage compared to other negotiation stages, thoroughly applied to Jamila's candle enterprise. A clear and well-justified conclusion is reached. Level 3 (8-12 marks): Candidates analyze the role of the planning stage and at least one other negotiation stage (discussion or bargaining) in Jamila's context. The links between the negotiation stages and Jamila's potential success are clearly explained. Level 2 (4-7 marks): Candidates apply knowledge of negotiation stages to the scenario. They describe what Jamila might plan (objectives, limits) or what she might do during the meeting, but lack analytical depth or evaluation. Level 1 (1-3 marks): Candidates demonstrate basic knowledge of the negotiation process or its stages without application to the scenario. Level 0 (0 marks): No response or response not worthy of credit.