OCT 2022
With reference to Figure 2 and Extract B, examine the likely impact on the profits of Samsung
of opening a smartphone factory in India. Use an appropriate diagram in your answer (8)
One of the main advantages of manufacturing in India is the significantly lower labour
costs compared to countries like China. As mentioned, wages for skilled workers in India are
15% less than in China. This reduction in labour expenses will lower Samsung's production
costs, which is likely to increase profit margins for the company.
However, Labour costs would be even lower if firms manufactured in Indonesia or Vietnam
Another advantage is economies of scale. By setting up the world’s largest smartphone
factory in India, Samsung will benefit from economies of scale. As production increases,
the company can spread fixed costs (such as investments in the factory, machinery, and R&D)
over a larger output, reducing the average cost per unit. This means that Samsung will be
able to lower its unit production costs, boosting profitability.
However Component shortages could impact Samsung’s ability to meet production targets.
The extract mentions that the supply of components in India is insufficient, which forces
businesses to import more expensive components from China, subject to heavy taxes.
This situation will likely increase production costs for Samsung, which might offset some of
the cost savings from cheaper labour and local manufacturing.
With reference to Extract A, analyse two reasons why India has become the world’s second
largest smartphone market. (6)
Large population (1K) means high potential sales in India (1An) • Increasing per capita real
incomes/disposable incomes (1K) mean smartphones are more affordable for consumers
(1An) • Large smartphone ownership (1K) shows potential for upgrading to the latest models
per capita income rose from US$1000 to US$1301 (1) • over half the population owns a
mobile phone/it is expected that the market will grow from US$ 25.1 billion in 2018-2019 to
US$ 80 billion in 2025-26 (1) in 2021 India’s population was 1.38 billion/India has the second
largest population after China (1)
With reference to Extract C, Figure 2 and your own knowledge, discuss the benefits of non-
price competition for consumers and businesses in the Indian smartphone industry. (14)
Non-price competition occurs when firms use such factors as packaging, delivery, or customer
service rather than price to increase demand for their products
Benefits to consumers:
• Better quality goods: Businesses are competing through innovation and
design. This enables consumers to benefit from more choice/better
quality goods, improving consumer welfare
• Increased awareness through advertising. This enables consumers to
make informed/rational decisions/maximising utility
• Branding: this enables consumers to recognise the smartphones
produced by each manufacturer
• After-sales service: this enables consumers to resolve problems when
using smartphones
• New products may be developed through non-price competition
allowing consumers to benefit from a greater range of smartphones
with better technology
Benefits for businesses:
• Higher profits: non-price competition makes demand more price
inelastic because of the better quality products. Businesses can charge
higher prices and increase their profits
• Avoids costly price wars
• Better branding/customer loyalty as businesses are able to differentiate
themselves from other smartphone producers. This can help businesses
increase their sales and market share
• Product differentiation through non-price competition helps these
businesses to set their own prices
Cons to consumers:
• Non-price competition may lead to higher prices for consumers as businesses will need to
cover their innovation costs, reducing consumer surplus
• Consumers would most likely benefit from lower prices in a price war/price competition
• Non-price competition increases the complexity of the purchase
• Non-price competition acts as a barrier to entry reducing choice
Cons to businesses:
Non-price competition can be expensive.
Businesses investing in new technology and innovation will increase their costs of
production which may cause profits to fall
• Investing in innovation and technology can be risky and takes a long time. If unsuccessful,
businesses may face increased costs and be unable to recover them with higher sales
• Smaller firms may not be able to operate in this market as non-price competition acts as a
barrier to entry for them
• Non-price competition could contribute to allocative inefficiency as prices rise
