2.1 Flashcards
What is business growth?
A: Business growth refers to the expansion of a company’s size, operations, and influence over time.
Can you provide an example of a company that started small and grew significantly?
Yes, Amazon started in a garage and evolved into a multinational corporation.
What are the two types of business growth?
Organic growth (internal expansion) and inorganic growth (mergers, takeovers).
Why do owners and managers desire to run a large business?
Owners and managers seek to operate a sizable enterprise.
Q: How can businesses benefit from lower unit costs through growth?
A: Businesses can benefit from lower unit costs by taking advantage of bulk order discounts from suppliers as output increases.
What is the motivation for growth in terms of product diversification?
A: Growth provides opportunities for product diversification, expanding the range of products offered in the market.
Q: Why do larger firms often have easier access to finance?
Larger firms often have easier access to finance due to their established reputation and financial stability.
Q: What is organic growth in the context of business expansion?
A: Organic growth is expansion from within the company, achieved through internal strategies.
Q: How is inorganic growth achieved in business?
Inorganic growth is achieved through mergers and takeovers, involving external strategies for expansion.
Q: What does retrenchment involve in a business?
A: Retrenchment involves a business scaling down its operations and may include reducing the workforce, closing less profitable outlets, and exiting existing markets.
Why might a business choose retrenchment?
: Retrenchment can help a business reduce costs, making it particularly relevant for businesses with a survival objective
Q: Define organic growth in business.
A: Organic growth is driven by internal expansion using reinvested profits or loans.
Q: Name four ways organic growth is typically generated.
A: Gaining a greater market share, product diversification, opening a new store, and international expansion into new markets
Q: What is the impact of product diversification on a business?
A: Product diversification opens up new revenue streams for a business.
Q: How might a business create new revenue streams?
A: Businesses may invest in research and development or innovate existing products to create new revenue streams.
Why might firms grow organically before considering integration
A: Firms often grow organically until they are financially positioned to integrate (merge or buy) with others
Q: What challenges does integration bring to a business?
Integration speeds up growth but introduces new challenges.
What are the advantages of organic growth in terms of pace and risk?
The pace of growth is manageable, and it is less risky as growth is financed by profits with existing business expertise.
Name a disadvantage of organic growth related to pace.
The pace of growth can be slow and frustrating.
Q: Why might organic growth not benefit from lower unit costs?
A: Organic growth may not benefit from lower unit costs (e.g., bulk purchasing discounts) as larger firms would.
What limitation might a business face in terms of access to finance with organic growth?
A: Access to finance may be limited when relying solely on organic growth
Q: What is external or inorganic growth in business?
A: External growth occurs when firms integrate through mergers or takeovers, resulting in rapid expansion.
Q: How does a merger differ from a takeover?
A: In a merger, two or more companies combine to form a new entity, while a takeover involves one company purchasing another, gaining control of its operations.
Q: What is a strategic reason for pursuing a merger or takeover?
A: A company may acquire another to expand into new markets, diversify product offerings, or access new technology
Q: How can mergers or takeovers lead to the elimination of competition?
A: Takeovers are often used to eliminate competition, increasing the acquiring company’s market share.
Q: What is an advantage of forward vertical integration?
A: Forward integration adds additional profit as profits from the next stage of production are assimilated.
Q: What is a disadvantage of vertical integration related to culture clash?
A: There can be a culture clash between merged firms, possibly leading to inefficiencies.
Q: How does horizontal integration impact market share?
A: Horizontal integration results in a rapid increase in market share.
Q: What is a disadvantage of horizontal integration related to unit costs?
A: Unit costs may increase due to unnecessary duplication of management roles.
Q: Why might a rapidly growing business choose to become a Public Limited Company (PLC)?
A: To secure significant capital for expansion, a business may transition from a private limited company (LTD) to a public limited company (PLC) through a stock market flotation.
What is a key aspect of the advantages of becoming a PLC?
A: Access to capital becomes easier, and significant amounts can be raised quickly.
How does becoming a PLC impact the risks associated with ownership?
A: Risks are shared among a larger group of shareholders, reducing the financial risk to any individual.
: What happens to a company’s shares when it becomes a PLC?
A: Shares become more liquid on a public stock exchange, making them easier to buy and sell.
How does the decision-making process change when a company becomes a PLC?
A: Decision-making can be extended as the company’s board of directors includes individuals from outside company management and representatives from major shareholders.
Q: What benefit does a PLC gain in terms of public profile?
A: Becoming a PLC can raise a company’s public profile, increasing visibility with customers, suppliers, and potential investors.
Q: What is a major disadvantage in terms of regulation for a PLC?
A: Increased regulation requires adherence to legal and financial regulations, which can be costly and time-consuming.
Q: How does selling shares to the public impact control in a business?
A: Selling shares means many shareholders have a say in how the company is run, potentially leading to a loss of control by the founders.
Why is setting up a public limited company considered costly?
A: Costs include fees for legal and accounting advice, along with expenses associated with the initial public offering (IPO).
What market pressure do PLCs often face?
A: PLCs are expected to deliver consistent growth and profits, placing pressure on the management team for short-term financial performanc
Q: What is a risk associated with publicly traded shares for a PLC?
A: A risk of hostile takeover exists, where a competitor may acquire a controlling interest, as seen with Kraft’s purchase of Cadbury’s in 2010.
Q: Why do businesses need finance?
A: Businesses need finance for startup, growth, and ongoing activities, including capital expenditure on fixed assets and revenue expenditure on day-to-day expenses.
Q: What is the distinction between internal and external sources of finance?
A: Internal sources come from within the business (owner’s capital, retained profit, sale of assets), while external sources come from outside the business.
Q: Name three types of internal sources of finance.
A: Owner’s capital, retained profit, and the sale of assets.
Q: What is owner’s capital, and when is it often used?
A: Owner’s capital is personal savings introduced by business owners. It is often used when starting a business or addressing specific needs like short-term cash flow problems.
Q: What is retained profit, and how is it reinvested?
A: Retained profit is the profit generated in previous years and not distributed to owners. It is reinvested back into the business without borrowing, reducing the need for external financing.
Q: How can a business generate finance through the sale of assets?
A: By selling assets no longer required (e.g., machinery, land, buildings), a business can generate internal finance. A sale and leaseback arrangement may also be made.
Q: How can a business manage cash flow to generate internal finance?
A: By negotiating extended payment terms with suppliers and incentivizing customers to pay promptly for credit purchases.
Q: Why is internal finance often considered free?
A: It does not involve the payment of interest or charges.
Q: How quickly can internal finance usually be organized?
A: Internal finance can usually be organized very quickly and without significant paperwork.
Q: Why might internal finance not be sufficient for a business’s needs?
A: Internal finance may not be sufficient to meet the needs of the business, especially during periods of rapid growth.
Q: Why is internal finance rarely as tax-efficient as external methods?
A: Internal finance methods are rarely as tax-efficient as external methods, such as loan repayments being treated as a business cost and offset against tax bills.
What advantage does internal finance have for businesses that may fail credit checks?
A: Businesses that may fail credit checks can access internal finance sources more easily than external sources.
Q: What is external finance, and where does it come from?
A: External finance comes from outside the business. Common forms include bank loans and share capital.
Q: How is share capital sourced for private limited companies (Ltd)?
A: Share capital for private Ltd companies is usually sourced by selling shares to family, friends, or private venture capitalists
Q: What is a bank loan?
A: It’s a sum of money borrowed from a bank and repaid with interest over a specific period.
Q: How are repayments usually structured for bank loans?
A: Repayments are typically made in equal installments over a fixed term, aiding business planning.
Q: Why might businesses choose bank loans?
A: They are usually unsecured, provide fixed interest rates, and offer a structured repayment plan.
Q: What benefit does a fixed interest rate provide?
A: It helps with business planning as repayments remain consistent over the loan term.
Q: What risks are associated with bank loans?
A: Interest payments are required, and business assets are at risk if repayments aren’t made as planned.
Q: What is a potential drawback of unsecured bank loans?
A: They may have higher interest rates compared to secured loans
Q: What is share capital?
A: It is finance raised from selling shares in a limited company.
Q: How is share capital sourced for public limited companies (plc)?
A: It is usually sourced through an initial public offering (IPO) and sold to investors on a stock exchange.
Q: What advantage does share capital offer in terms of raising funds?
A: Large amounts of money can be quickly raised from wealthy investors, especially when a company becomes a public limited company (plc
Q: How can shareholders benefit the business?
A: They may bring expertise, and when dividends are declared, they are entitled to a share of the company’s profit.
Q: What rights do shareholders usually have?
A: Shareholders usually have voting rights at the Annual General Meeting (AGM) and can influence the composition of the Board of Directors
Q: How might a business be affected by having numerous shareholders?
A: Decision-making may become complex, and control may be shared among a larger group.
Q: What factors can impact a business’s aims and objectives?
A: Market conditions, technology, performance, legislation, and internal reasons can influence business objectives.
Q: Provide an example of how market conditions influence business objectives.
Q: Provide an example of how market conditions influence business objectives.
A: Uber and Lyft initially focused on capturing market share in ride-hailing but shifted to profit maximization as competition intensified
Q: How can technology influence a business’s objectives?
A: Technological advances may prompt a shift in focus towards cost-effective methods, leading to changes in business objectives
Q: What might trigger a business to change objectives based on performance?
A: If a business fails to meet sales goals, it may change objectives to improve financial performance, potentially involving retrenchment
Q: How can changes in legislation impact a business’s aims and objectives?
A: Changes in legislation may necessitate a shift in focus to comply with regulations or capitalize on new opportunities.
Q: What is a common evolution in business objectives regarding survival and growth?
A: A startup may initially aim to survive and break even, evolving to focus on growth as it becomes more established.
Q: How can entering or exiting markets impact a company’s objectives?
A: Companies may enter new markets for expansion or exit unprofitable markets, influencing their objectives accordingly.
Q: What is a possible outcome of a growing company in terms of the workforce?
A: A growing company may hire additional employees to support expansion, affecting its objectives.
Q: How can a company’s product range change in response to objectives?
A: Companies may increase product range for market competitiveness or decrease it if certain products prove to be unprofitable
Q: Explain the impact of a CEO’s shift in focus on a company’s objectives.
A: A CEO’s change in focus, such as Satya Nadella’s shift at Microsoft, can lead to corresponding changes in the company’s objectives.
Q: Define globalization in the context of international business.
A: Globalization is the economic integration of different countries through increased freedoms in the cross-border movement of people, goods/services, technology, and finance.
Q: What characterizes the past two decades in terms of global business expansion?
A: The past two decades have been characterized by rapid globalization and growing international business expansion.
Differentiate between imports and exports in international trade.
A: Imports are goods and services bought by one country from another, while exports are goods and services sold by domestic businesses to people or businesses in other countries.
Provide an example of a significant import for the UK in 2022.
A: In 2022, the UK’s biggest import was cars valued at approximately £3.25 billion.
Q: What generates extra sales revenue for businesses in international trade?
A: Exports generate extra sales revenue for businesses selling their goods abroad.
Q: How does globalization present opportunities for businesses in terms of location?
A: Globalization presents opportunities for businesses to relocate to low-cost locations overseas, including setting up production facilities in other countries.
Q: What factors need to be assessed when deciding to set up production facilities in another country?
A: Factors to assess include costs of production, skills and availability of the labor force, infrastructure, location in a trade bloc, government incentives, ease of doing business, political stability, natural resources, and the likely return on investment.
Q: Why is assessing the cost of production important for businesses?
A: Businesses aim to keep production costs low to increase profit margins or sell at a lower price for a competitive advantage
Q: How can location in a trading bloc benefit a business?
A: A business located in a trade bloc may access advantages like reduced protectionist measures, enhancing market access.
Q: Why is political stability an important factor when assessing production locations?
A: Businesses may be at risk of not gaining a return on investment in a country with political instability; stable economies are considered less risky investments.
Q: What role do government incentives play in the decision to set up production facilities in another country?
A: Governments may offer incentives such as grants, business loans, and tax breaks, influencing businesses’ decisions.
Q: Define a multinational corporation (MNC).
A: A multinational corporation is a business registered in one country with manufacturing operations/outlets in different countries.
Q: What factors contribute to the growth of MNCs?
A: Factors such as globalization and deregulation have contributed to the growth of multinational corporations.
Q: How do MNCs choose their locations for manufacturing operations?
A: MNCs choose locations based on factors such as cost advantages and access to markets.
Q: Provide an example of an MNC and its international presence.
A: Starbucks, headquartered in Washington, USA, has 32,000 stores in 80 countries.
Q: What advantages can MNCs gain regarding labor and raw materials?
A: MNCs can gain access to cheap labor and/or raw materials in different countries.
Q: How may local residents benefit from MNCs operating in their area?
A: Local residents may benefit from job opportunities and growth in the local economy generated by MNCs.
Q: What positive effects can MNCs have on local infrastructure?
A: MNCs often invest in improving infrastructure, leading to better roads, transportation, and access to resources for the local community.
Q: What negative environmental impact might MNCs have during production?
A: MNCs may cause damage to local habitats or the environment during the production process.
Q: What potential drawback might occur when MNCs leave a country?
A: MNCs may leave unsightly production facilities behind once they have extracted all the resources and left the country.
Q: Define protectionism in the context of government policies.
A: Protectionism is when a government seeks to protect domestic industries from foreign competition.
Q: What is a tariff, and how does it impact imported goods?
A: A tariff is a tax imposed on imported goods from other countries. It increases the price of imported goods, shifting demand from foreign to domestic businesses.
Q: Provide an example of a tariff on imported goods.
A: An example is tennis rackets imported into the UK from China, which incurs a tariff of 4.7%.
Q: How does a tariff on imported cheese affect consumer choices in the USA?
A: When the USA places a tariff on imported cheese from Britain, the price of British cheese in the USA rises, making American cheese more likely to be purchased.
Q: Name a benefit of tariffs related to protecting industries.
A: Tariffs protect infant industries, allowing them to become more competitive globally over time.
Q: How do tariffs contribute to government revenue?
A: Tariffs lead to an increase in government tax revenue.
Q: What role do tariffs play in reducing dumping by foreign businesses?
A: Tariffs discourage foreign businesses from selling below market prices, reducing the practice of dumping.
Q: What is a disadvantage of tariffs in terms of imported raw materials?
A: Tariffs may increase the cost of imported raw materials, affecting businesses using these goods for production and leading to higher prices for consumers.
Q: How does competition for domestic firms change with tariffs, and what is a potential consequence?
A: Tariffs may reduce competition for domestic firms, potentially making them more inefficient and resulting in lower quality products for consumers.
Q: Explain the impact of tariffs on consumer choice.
A: Tariffs can reduce consumer choice as imports become more expensive, making some products unaffordable for certain customers
Q: What is a trading bloc?
A: A trading bloc is a group of countries that form an agreement to reduce or eliminate protectionist measures between each other
Q: Name three of the largest trading blocs.
A: The European Union (EU), The Association of Southeast Asian Nations (ASEAN), and The North American Free Trade Agreement (NAFTA
Q: What does being a member of the EU include for countries within the union?
A: Being a member of the EU includes free movement of goods and people, with no trade restrictions between member countries and common external barriers to countries outside the union.
Q: What challenges do businesses outside a trading bloc face?
A: Businesses outside a trading bloc face higher costs from protectionist measures such as tariffs and meeting legal requirements inside the trading bloc, making them less competitive within member countries
Q: List two advantages for businesses located within a trading bloc.
c.
A:
Access to more markets due to free movement of goods.
Protection from external tariff walls, which are taxes applied to imported goods from outside the blo
Q: What is an external tariff wall, and how does it benefit businesses within the trading bloc?
A: An external tariff wall is a tax on imported goods from outside the bloc, protecting businesses within the trading bloc from competition outside the bloc.
Q: How might the free movement of labor within a trading bloc benefit businesses?
A: Free movement of labor allows businesses to source workers from a wider pool, potentially lowering wages and reducing costs for businesses.
Q: Name a disadvantage for businesses inside a trading bloc related to competition.
A: Increased competition within the trade bloc can be a disadvantage, especially for small businesses with fewer resources.
Q: How might common rules and regulations impact businesses within a trading bloc?
A: New rules and regulations may be implemented that all businesses must adhere to in order to operate as one market. For example, the EU working time directive limits employees to a maximum of 48 hours per week.
Q: What is trade diversion, and how does it affect efficiency?
A: Trade diversion occurs when trade is redirected within the bloc, potentially reducing the incentive for businesses to be more efficient. This can lead to less competition from efficient producers outside the bloc.
Q: How has the use of the internet and e-commerce transformed international business competition?
A: The internet and e-commerce enable companies to reach global customers and sell products/services through online platforms, allowing for widespread international business operations
Provide an example of a company with extensive global reach through online platforms.
A: Asos plc is an example; it sells products in almost every country in the world through its online platform.
Q: What is the marketing mix, and what are its components?
A: The marketing mix consists of the four Ps: product, price, place, and promotion. It is a set of controllable tools that a company uses to promote its brand or product in a market.
Q: Why do businesses need to adapt the marketing mix when entering new overseas markets?
A: Businesses need to consider cultural behaviors and customs, adapting the marketing mix to ensure the success of their product or service in different international markets.
Provide an example of how cultural considerations impact the marketing mix.
A: In India, where beef and pork are not consumed for religious reasons, fast-food outlets have adapted their menu to respect this cultural practice.
Q: What unintended meanings can arise in global marketing when using images, symbols, or language across different cultures?
A: Unintended meanings can arise due to different connotations in various cultures. For example, the color white symbolizes purity in Western cultures but represents death in some Asian cultures
Q: Why is accurate translation crucial in international marketing?
A: Accurate translation is crucial to avoid misunderstandings and negative connotations, ensuring that marketing messages are culturally sensitive and resonate positively with the target audience
Q: Provide an example of a mistranslation affecting a marketing message.
A: When KFC entered the Chinese market, the translation of its slogan “Finger-Lickin’ Good” into Chinese as “Eat Your Fingers Off” had negative connotations in Chinese culture.
Q: Why have ethical and environmental considerations become increasingly important for businesses?
A: Consumer concerns can quickly damage a business or brand reputation, and stakeholders demand greater accountability and transparency, making ethical and environmental practices essential.
Q: How can ethical and sustainable practices impact a business’s profitability?
A: While they can prove costly, some companies have used ethical and environmental practices to add value to their brands, increasing profitability and positively shaping their public image.
: What is the impact of ethical considerations on business activity?
A: Ethical considerations can significantly impact business activity. Companies, such as H&M, have faced criticism for unethical practices like using sweatshops. In response, they implemented a code of conduct and adopted sustainable materials, impacting their profit margin.
Q: Why is balancing environmental responsibilities with profit generation a priority for businesses?
A: Businesses, like McDonald’s, have faced criticism for contributing to issues like deforestation for palm oil production. To address this, companies may commit to sourcing sustainable materials, impacting their profit margin.
Q: What are pressure groups, and what is their purpose?
A: Pressure groups are organizations seeking to influence public policy or business practices. They use various tactics to achieve their goals, often targeting companies to bring about change in their practices
How Business Aims & Objectives Often Evolve
Change from survival to growth
Increasing and decreasing the product range
Entering or exiting markets
Growing or reducing the workforce
Factors to assess when deciding considering setting up production facilities in another country
Infrastructure
Return on investment
Location in trade blocs
Natural resources
Political stability
Ease of doing business
Government incentive
Costs of production
Skills and availability of labour force
Benefits of trading blocs for businesses
wider markets
external tariff walls
infrastructure support
free movement of labour
drawbacks of trading blocs for businesses
increased competition
common rules and regulations
retaliation
inefficiency
Considerations for Businesses when adapting their marketing mix to compete internationally
Cultural differences
Unintended meanings
Inappropriate / inaccurate translations
Language
Inappropriate branding and promotion
Different tastes
types of promotion
branding
advertising
product trials
sponsorship
special offers
sources of competitive advantage
delivery times
customer service
price
reliability
brand image and reputation
ethical stance
design
quality
