1.6 Business Growth Flashcards
What is organic growth?
The growth of a business internally by increasing sales. Sales can be increased in a number of ways.
What is External growth (inorganic?)
The growth of a business by takeover or merger.
How can a business increase sales?
Increase output.
Gain new customers.
develop new products.
Increase market share.
How can a business increase output?
introduce more efficient technology.
build more factory space.
Take on more workers.
How can a business gain new customers?
Reduce prices.
Open shops in new places.
Better marketing.
What is a merger?
Where two business agree to join together to form one larger business.
This leads to quick growth.
What is a takeover?
When one business buys control of another. It can be hostile or friendly.
What percentage of shares do you need to takeover a limited company?
More than 50%.
Name the three types of merger/takeover?
Horizontal
Vertical
Diversification
State an advantage of growth by horizontal takeover.
More control of the market.
Bigger discounts from suppliers..
State a disadvantage of growth by horizontal takeover.
A bigger business may be much harder to manage and control than two smaller businesses.
What are the three stages of production?
Primary, secondary, tertiary.
Which stage of production is concerned with retail and providing services?
Tertiary.
Which stage of production is concerned with manufacturing?
Secondary.
Which stage of production is concerned with farming, fishing and extraction of materials?
Primary
What is forwards vertical integration (growth) and give an example?
When a business merges with or takes over a business further forward in the chain of production e.g. Cadbury (secondary) buys Tesco (primary).
What is diversification?
When a business merges with or takes over a business with which there is no real connection.
State one benefit of diversification.
If one the sales of one business/product falls, they have the sales of the other business/product to fall back on. Risk is reduced.
State one disadvantage of diversification.
The business may have little knowledge of the market/product it has bought out.
State an advantage of backwards vertical growth.
It makes sure you have supplies of the goods you need.
