OxfordAQA A-Level Business: Types of strategies (9725) – Revision Notes

These notes condense section 3.4.4 Types of strategies of the OxfordAQA International AS and A-level Business (9725) specification, Version 1.1, for International AS exams May/June 2027 onwards and International A-level exams May/June 2028 onwards. Everything here is International A-level only and is assessed in Unit 4: Business strategy. If you are finishing the older 9625 specification, use your own specification instead. The study guide teaches each point in full, with worked examples.

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Formulas for this section

Measure	Formula
Total cost	fixed costs + (variable cost per unit × output)
Unit cost	total cost ÷ output
Capacity utilisation (%)	actual output ÷ maximum possible output × 100
PED	percentage change in quantity demanded ÷ percentage change in price
Four firm concentration ratio	sum of the four largest firms’ market shares (%)
YED	percentage change in quantity demanded ÷ percentage change in income
Market share (%)	firm’s sales ÷ total market sales × 100
Market growth (%)	(this year’s market − last year’s) ÷ last year’s × 100
Foreign price	home price × exchange rate (foreign units per home unit)
Home value of a foreign amount	foreign amount ÷ exchange rate
Gross / operating / net margin (%)	that profit ÷ revenue × 100
ROCE (%)	operating profit ÷ capital employed × 100
Labour turnover (%)	number leaving in the year ÷ average number employed × 100

Method in steps: interpreting a cost and capacity change

1. Find total cost before and after (fixed + variable × output).
2. Divide each by actual output for unit cost.
3. Find capacity utilisation before and after.
4. Explain which economy (or diseconomy) moved the unit cost.
5. Judge: is the extra capacity likely to be filled?

Worked reminder. Fixed costs £250,000, variable cost £12 a unit, output 40,000, capacity 50,000. Total cost = 250,000 + 480,000 = £730,000; unit cost = £18.25; utilisation = 80%.

Business growth

SME. Small or medium sized enterprise. Pros: speed, flexibility, customer closeness, low overheads. Cons: higher unit costs, harder finance, few key people, weak buying power.

Reasons to grow. Lower unit costs; market share and power; spread risk; higher owner returns; survival.

Economies of scale (unit cost falls)	Diseconomies of scale (unit cost rises)
Purchasing: bulk discounts	Control: hard to monitor every part
Technical: bigger, more efficient equipment	Communication: long chains distort messages
Financial: cheaper, wider borrowing	Coordination: sites and departments diverge

Growth methods in one line each

• Merger: two firms agree to combine into one.
• Acquisition (takeover): one firm buys a controlling stake in another.
• Franchising: franchisees pay fees to trade under the brand; fast and low capital, but less control.
• Joint venture: two firms set up a jointly owned project; share cost and risk, risk of dispute.

Integration

• Backward vertical: buy a supplier (earlier stage). Secures inputs.
• Forward vertical: buy a customer or outlet (later stage). Controls distribution.
• Horizontal: buy a rival at the same stage. Market share, economies of scale, possible competition-law issues.
• Conglomerate: buy into an unrelated industry. Spreads risk, little synergy.

Method in steps: assessing a growth method

1. State the method precisely (merger, acquisition, franchise, joint venture, organic).
2. Link one advantage to the case firm’s objective, such as speed or market share.
3. Link one drawback to its resources, culture or control.
4. Weigh them, and judge which matters more for this firm now.

Retrenchment. Shrinking deliberately. Reasons: falling demand, losses, overcapacity, diseconomies, need for cash, refocus. Problems: redundancy costs, morale, lost skills, reputation, no capacity for a recovery.

Functional areas. Growth: more finance, staff, structure, capacity, wider marketing. Retrenchment: redundancies, closures, narrower range, cash released.

Must-know distinctions

• Organic vs external growth: own resources and slow versus joining another firm and fast.
• Merger vs acquisition: agreement between equals versus purchase of control.
• Economies vs diseconomies: both are about unit cost, not total cost.
• Capacity vs output: capacity is the maximum; output is what was actually made.

Innovation

Term	Meaning
Product innovation	New or improved good or service
Process innovation	New or improved method of production or delivery
Kaizen	Continuous small improvements from staff
R&D	Technical work to create and test new products and processes
Intrapreneurship	Staff act as entrepreneurs inside the firm
Benchmarking	Comparing with the best and adopting what works
Cross-functional team	Staff from several functions on one project
Patent	Legal right to block others from making or selling an invention for a limited time
Copyright	Protects original creative work (software, text, designs)
Trademark	Protects brand names and logos

Purpose and value: competitive advantage, sales growth, premium prices, lower costs. Pressures: rivals, tastes, short life cycles, technology, law, shareholders. Barriers: cost, risk, short-termism, resistance, skills gaps, risk-averse culture, copying. Functional impact: marketing gets a USP to promote; operations retools; finance funds spending before revenue; HR recruits and trains.

Globalisation

Why trade globally: saturated home market, scale, cheaper inputs, spread risk. Why become multinational: nearness to customers, lower transport cost, avoid tariffs, cheaper resources.

Factors for choosing a market: size, growth, incomes, competition, stability, barriers, culture, currency. Adapt or standardise: standard gives scale; adapting fits local tastes and laws at extra cost. Where to produce: cost, skills, infrastructure, nearness to market, tariffs.

• Offshoring: moving production abroad, mainly for lower costs.
• Re-shoring: bringing it back, for example after foreign wages or shipping costs rise or supply chains fail.

Trading blocs. EU: customs union with no internal customs duties and a common external tariff. ASEAN: tariffs cut within the bloc; members set their own on outside goods. USMCA: free trade agreement of the United States, Mexico and Canada. Insiders gain access; outsiders face barriers.

Protectionism. Tariff = tax on imports. Quota = limit on import quantity.

Economic data in a target market. Inflation raises local wages, rents and prices: at 5% inflation a monthly wage bill of 40,000 local units becomes 42,000. High unemployment weakens spending but eases recruitment. High interest rates make local borrowing dear and cut spending by customers who buy on credit.

Entry methods ranked by control, cost and risk: export (lowest) → licensing/franchising → joint venture → FDI (highest).

Method in steps: comparing two international markets

1. Calculate what the data allows: concentration ratio, market growth, the firm’s likely share.
2. Use YED with the GDP growth forecast to predict demand growth in each market.
3. Use PED to judge whether to enter at a low or a premium price.
4. Convert prices or costs at the current exchange rate, then at the expected one.
5. Add the non-numerical factors: trading bloc membership, tariffs or quotas, culture, stability.
6. Judge which market fits the firm’s resources and objectives, and say what would change your view.

Sustainability

• Environmental: less waste and emissions, renewables, energy efficiency.
• Social: fair treatment of workers, community support, ethical sourcing.
• Economic: long-term profit without exploiting resources or people.

Challenges: cost, measurement, profit trade-offs, supplier resistance, greenwashing. Triple Bottom Line: people, planet, profit. Value: fuller picture for stakeholders. Limits: hard to measure, selective reporting.

Quick self-test

1. Fixed costs £60,000, variable cost £8 a unit, output 5,000. Find total cost and unit cost.
2. Output 7,200 units, capacity 9,000. Find capacity utilisation.
3. The four largest firms hold 22%, 18%, 15% and 9%. Find the four firm concentration ratio.
4. PED is −2.0. Price rises 5%. What happens to quantity demanded?
5. YED is 1.2. Incomes rise 4%. What happens to quantity demanded?
6. A part costs €30. Find its cost in pounds at £1 = €1.20 and at £1 = €1.25.
7. Gross profit £180,000 on revenue £600,000. Find the gross margin.
8. Operating profit £90,000, capital employed £750,000. Find ROCE.
9. 14 staff left; average employment was 175. Find labour turnover.
10. A firm sells £6m in a £48m market, which grows to £50.4m next year. Find its share now and the market growth rate.
11. A clothing retailer buys its main garment factory. Name the type of integration.
12. Name the three diseconomies of scale in the specification.

Answers

1. 60,000 + (8 × 5,000) = £100,000; 100,000 ÷ 5,000 = £20.
2. 7,200 ÷ 9,000 × 100 = 80%.
3. 22 + 18 + 15 + 9 = 64%.
4. −2.0 × 5 = falls by 10%.
5. 1.2 × 4 = rises by 4.8%.
6. 30 ÷ 1.20 = £25; 30 ÷ 1.25 = £24.
7. 180,000 ÷ 600,000 × 100 = 30%.
8. 90,000 ÷ 750,000 × 100 = 12%.
9. 14 ÷ 175 × 100 = 8%.
10. 6 ÷ 48 × 100 = 12.5%; (50.4 − 48) ÷ 48 × 100 = 5%.
11. Backward vertical (the factory is an earlier stage).
12. Control, communication, coordination.

Where marks are usually lost

• Using capacity rather than actual output as the divisor for unit cost.
• Giving an economy of scale that lowers total cost, not unit cost.
• Calling a takeover a merger, or forward integration backward.
• Listing advantages of franchising with no link to the case business’s capital, brand or control.
• Forgetting the minus sign on PED when predicting the direction of a demand change.
• Multiplying instead of dividing when converting a foreign-currency amount into the home currency.
• Using the year-end headcount instead of the average in labour turnover.
• Using net profit in ROCE; the formula uses operating profit.
• Treating TBL as only an environmental report.
• Ending an “assess” or “evaluate” answer with no judgement about which strategy suits this business.

Official syllabus

OxfordAQA International AS and A-level Business (9725) specification, Version 1.1, for International AS exams May/June 2027 onwards and International A-level exams May/June 2028 onwards. Published by OxfordAQA. Section 3.4.4 Types of strategies.