1- Business growth Flashcards
1
Q
How does organic growth take place?
A
Through investment and more labour.
2
Q
Advantages of organic growth?
A
- Integration is expensive, time-consuming and high risk , with evidence suggesting that the long-term share price of the company falls following integration. Firms often pay too much for takeovers and integration is often poorly managed with many key workers tending to leave after the change.
- The firm is able to keep control over their business.
3
Q
Disadvantages of organic growth
A
- Sometimes another firm has a market or an asset which the company would be unable to gain through organic growth.
- Organic growth may be too slow for directors who wish to maximise their salaries.
- It will be more difficult for firms to get new ideas.
4
Q
Advantages of vertical integration
A
- There is increased potential for profit as the firm takes the potential profit from a larger part of the chain of production.
- There will be less risks as suppliers do not have to worry about buyers not buying their goods and buyers do not have to worry about suppliers not supplying the goods.
- With backward integration, businesses can control the quality of supplies and ensure delivery is reliable . - They don’t have to worry about being charged high prices for supplies, keeping costs low and allowing lower prices for consumers. This can increase competitiveness and sales.
- Forward integration secures retail outlets and can restrict access to these outlets for competitors.
5
Q
Disadvantages of vertical integration
A
- Firms may have no expertise in the industry they took over.
6
Q
Advantages of horizontal integration
A
- This helps to reduce competition as a competitor is taken out and increases market share, giving firms more power to influence markets.
- Firms will be able to specialise and rationalise , reducing the areas of the businesses which are duplicated.
- The business is able to grow in a market where it already has expertise , which is more likely to make the merger successful.
7
Q
Disadvantages of horizontal integration
A
- The problem is that it will increase risk for the business as if that particular market fails, they have nothing to fall back on and will have invested a lot of money into that area.
8
Q
Advantages of conglomerate integration
A
- It is useful for firms where there may be no room for growth in the present market.
- The range of products reduces the risk for firms and if a whole industry fails, they will still survive due to the other parts of the business.
- It will make it easier for each individual part of the business to expand than if they were on their own as finance can be easily obtained and managers can be
transferred from company to company within the firm.
9
Q
Disadvantages of conglomerate integration
A
- The problem with this is that firms are going into markets in which they have no expertise. It can often be damaging for the business.
10
Q
Constraints on business growth
A
- Size of the market
- Access to finance
- Owner objectives
- Regulation
11
Q
How can the size of the market affect business growth?
A
- A market is limited to a certain size and so not all businesses are able to mass produce because their goods would not be bought by consumers.
- Often niche markets and luxury markets are limited so make growth difficult.
12
Q
How can access to finance affect business growth?
A
- Banks may be unwilling to lend firms money, particularly smaller businesses that they see as high risk.
- Firms won’t be able to always use retained profits to invest.
13
Q
How can the owners objectives affect business growth?
A
- Some owners may not want their business to grow any further as they are happy with their current profits and do not want the extra risk or work that comes with growth.
14
Q
How can regulation affect business growth?
A
- In some markets, the government may introduce regulation which prevents businesses from growing.
- E.g. competition law to prevent mergers.
