2.1 Flashcards
What is internal growth/ organic growth
When a business grows by expanding its own activities
Why is internal growth growth good
It’s relatively inexpensive. Also it generally means the firm expands by doing more of what it’s already good at- making its existing products. So it’s less likely to go wrong
What are the two methods of organic growth
- Targeting new markets
- Developing new products
What is meant by “targeting new markets”
When a business aims to sell its product to people who it hasn’t tried to sell to before
What is meant by “developing new products”
Selling a brand new product will increase sales for a business, allowing it to grow
True or false
External growth is faster but more risky then internal growth
True
What does external growth involve
Usually involves a merger or takeover
What is a merger
When two firms join together to form a new (but larger) firm
What is a takeover
When an existing firm expands by buying more than half the shares in another firm
What are the four basic ways a firm can merge with or take over other firms
- Join with a supplier
- Join with a competitor
- Join with a customer
- Join with an unrelated firm
True/ false
More than half of all takeovers and mergers are successful
False
What happens to a firm’s output when the firm expands
It increases
What happens to costs when a firm expands
It increases
What are the three reasons economies of scale can happen for different reasons
- Larger firms need more supplies than smaller firms, so will buy supplies in bulk. This normally means they can get them at a cheaper unit price than a small firm
- Larger firms can afford to buy and operate more advanced machinery than smaller firms which may make processes faster or cheaper to run
- The law of increased dimensions means that, for example, a factory that’s ten times as big will be less than ten times as expensive
What is meant by ‘diseconomies of scale’
When an increase in output leads to lower average costs ( buying stuff in bulk)
What are examples of ‘diseconomies of scale’
- The bigger the firm, the harder and more expensive it is to manage it properly
- Bigger firms have more people o it can be harder to communicate within the company. Decisions take time to reach the whole workforce, and workers at the bottom of the organisational structure feel insignificant. Workers can get demotivated, which may cause productivity to go down
- The production process may become more complex and more difficult to coordinate. For example, different departments may end up working on very similar projects without knowing
Can Public Limited Companies can sell shares on a Stock Market
Yes
What are advantages of being a PLC
- Much more capital can be raised by a PLC than by any other kind of business
- That helps the company to expand and diversify
- PLCs are incorporates and have limited liability, so if things go wrong, the owners only lose the amount of money they’ve invested
What are disadvantages of being a PLC
- It can be hard to get lots of shareholders to agree on how the business is run. Each shareholder has very little say (unless they own a lot of shares)
- Someone could buy enough shares shares to take over the company - if they can convince shareholders to sell
- The accounts have to be made public - so everyone (including competitors) can see if a business is struggling
- PLCs can have hundreds or even thousands of shareholders, so there are lots of people wanting a share of the profits
What does globalisation mean
The world is more interconnected
What is the impact of globalisation on imports
Firms have a larger market to buy from, so they may be able to buy supplies more cheaply, which reduces costs and can increase profits. However, more important means there’s more competition in a country. Firms may be forced to reduce their prices to stay competitive.
What is the impact of globalisation on exports
Being able to export goods easily means firms have a larger market to sell to. This can lead to an increased sales and higher profits
What is the impact of globalisation on business location
Globalisation has made it easier for businesses to locate parts of their business abroad. This may allow them to reduce so they can make profit
What is the impact of globalisation on multinationals
Single business operating in more than one country are known as multinationals. When a big multinational business enters a new country, firms already in that country may need to change the way they operate in order to compete successfully
What are tariffs
These are taxes on goods that are being imported or exported. They make products imported into a country more expensive than those that are produced in the home country. This helps domestic firms stay competitive
What are trade blocs
These are groups of countries that have few or no trade barriers between them
What are examples of ways that a business might become more sustainable
- Use less packaging and recycling more
- Dispose of hazardous waste carefully
- Use more efficient machinery
- Use more renewable energy resources, and electrical goods that are more energy efficient
What are pros of a business being environmentally friendly
- People will want to buy the products more
- Competitive advantage
What are cons of a business being environmentally friendly
Expensive
What is organic growth
When a business grows by expanding its own activities
Explain how a business can use new markets to expand
- When a business aims to sell its products to people who it hasn’t tried to before
- Firm can use new technology to target new markets
- A firm could also set up branches in other countries so they can sell directly in markets abroad
- They could also change the marketing mix of the product so that it appeals to a new market
Explain how innovation can help a business to expand
This is when someone comes up with a new product or way of doing things. Often, innovation comes about as a result of research and development
Describe the difference between takeovers and mergers
A merger involves the mutual decision of two companies to combine and become one entity; it can be seen as a decision made by two “equals.” A takeover, or acquisition, is usually the purchase of a smaller company by a larger one.
EXPLAIN how MANY takeovers and mergers are successful
- Less than of all takeovers and mergers are successful. It’s very hard o make two different businesses work as one. Management styles often differ between firms - the employees of one firm may be used to one company culture and not be motivated by the style used in one another
What are economies of scale
A proportionate saving in costs gained by an increased level of production.
“mergers may lead to economies of scale”
Give two examples of external sources of finance that may be available to an established business
- Loan capital
- Share capital
Explain why becoming a public limited company allows a firm to raise a lot of money
the company can be listed on the Stock Exchange. This allows the company to raise capital by selling shares to the public. It also enables existing shareholders to buy and sell shares easily.
Give one disadvantage of a business becoming a public limited company
- It can be hard to get lots of shareholders to agree on how the business is run. Each shareholder has very little to say ( unless they have a lot of shares)
- Somebody could buy enough shares to take over the company - if they convince shareholders to sell
- The accountants have ti be made public - so everyone (including competitors) can see if a business is struggling
- PLCs can have hundreds or even thousands of shareholders, so there are lots of people wanting a share of the profits
Give three examples of how a business’s aims and objectives might change as it grows
- Performance - if a company performs better or worse than expected, aims and objectives may be changed
Explain how an increase in the competitiveness of a market may affect a business’s aims and objectives
A company might focus more on maintaining its market share or maximising sales, rather than maximising profits or growing its market share
Explain why changes in technology could affects a business’s aims and objectives
Companies need to keep up to keep up to date with new technology, especially if their competitors are using it. They may need to alter their aims and objectives so they spend more money on getting new equipment and training staff rather than investing in growth
Explain two ways in which a business might benefit from globalisation
Imports are cheaper
The ability to export
It’s easier for a company to locate parts of their business abroad
What is the name given to a single business operating in more than one country
Multinationals
Explain two ways a business may face barriers to international trade
- Tariffs - these are taxes on goods that are being imported or exported. They make products imported unto a country more expensive
- Trade blocs - these are groups of countries that have few or no trade barriers between them
Give one way in which a business may need to change its marketing mix when it starts selling its products in different countries
- They can change prices
- Target products and promotion at the country’s culture
Describe three ways in which a firm could make sure it’s working ethically
- Fair pay for fair hours
- Codes of conduct
- Buy from Fair Trade sources
Give one way in which working ethically may improve a firm’s productivity
Treating staff ethically can mean workers are more motivated, which should make the firm more productive
State two ways in which a business can reduce its impact on the environment
- Use less packaging and recycle more so that less waste goes to landfills
- Dispose of hazardous waste carefully so that it doesn’t pollute land or water
- Use more efficient machinery that is less polluting to the air, or quieter machinery that causes less noise pollution
- Use more renewable energy resources, and electrical goods that are more energy efficient
Explain one way in which a business might change its marketing mix in response to pressure groups
By making sure the materials are more ethically sourced, or have less of an impact on the environment. It might also run promotional campaigns to repair the negative publicity the pressure groups has caused
What are 3 pros of organic growth
- Personal satisfaction
- Retain ownership
- Retain profit
- Retain culture
- Lower risks
- Benefit from economies of scale
What are 3 pros of inorganic growth
- More financial and nonfinancial support
- Faster
- Knowledge and expertise
- More staff
- Exposure
- Economies of scale
What are 3 cons of organic growth
- Long term process
- Possibly more expensive
- More competition
What are 3 cons of inorganic growth
- Less control ( Dilution of ownership)
- Losing authenticity
- Possible conflict
What is the difference between inventions and innovations
Innoventions adapt something that exists, invention is something completely new
What are three ways a business can grow
- Expanding overseas
- Changing the marketing mix ( 4 Ps)
- Taking advantage of new technology
A growing business may decide as it gets larger to _ shares on the stock exchange to raise _
Float
Funds
Define internal source of finance
Money that the business finds within itself
Define external source of finance
This means that the business will need to borrow the money to expand somehow
What are internal sources of finance that are short term
Selling assets
Trade credit
What are internal sources of finance that are long term
Profit
Personal savings
Share capital
What are external sources of finance that are short term
Overdraft
Crowd funding
What are external sources of finance that are long term
Mortgage
bank loan
Share capital
What does retained profit mean
Money that the business has from sales
What are advantages of using retained profit as a source of finance
- Low risk
- No interest
- Easy
- Control
What are advantages of using sales of assets as a source of finance
Easy
No cost
Define selling assets
Selling that you own worth value
What are disadvantages of using retained profit as a source of finance
Might not have a lot
Less for you
Shareholders want dividends
What are disadvantages of using sales of assets as a source of finance
Might not own assets
Deprecation
When it’s gone it’s gone
What are advantages of using loan as a source of finance
Large sums of money
Large businesses are more likely to be able to get one
Long term
What are disadvantages of using loan as a source of finance
Pay interest
Banks require security usually property
What are advantages of using share capital as a source of finance
Fast
No interest
Can raise a lot of money
What are disadvantages of using share capital as a source of finance
Loss of control
What is share capital
When a business sells shares. Money revived from selling shares
Define venture capital
capital invested in a project in which there is a substantial element of risk, typically a new or expanding business. (Dragons den)
What is classified as long term source of finance
3+ years
What is classified as short term source of finance
0-3 years
What does SMART stand for
Specific Measurable Achievable Realistic Time
Why do businesses set aims and objectives
- To get a loan from the bank
- To give the business direction
- For motivation
- To track progress
Why do businesses change their aims and objectives
- Change in focus
- Change in legislation (law)
- They achieved the old goal
- Internal reasons
- Size
- Technology
- External factors
How business A+O evolve
- Focus on survival or growth
- Entering or leave market
- Increasing/decreasing the product range
What is offshoring
When a business may decide to move the whole business overseas or change location
What are benefits of offshoring
○ Cheaper labour
○ Cheaper land costs
○ Laws/ legislation
○ To avoid tariffs/ taxes
What is a drawback of offshoring
○ Loss of workers
○ May cause more environmental pollution
○ Different customer wants/needs
○ Different disposable income levels
What are trade blocs
A group of countries who make a trade agreement not to place tariffs on imports
What are tariffs
A tax placed on an import to increase its price and decrease its demand. Set by the government
What are advantages of tariffs
○ UK produced goods don’t have to pay the tariff and so are likely to be cheaper
○ The tariff allows UK businesses to sell more because they gain a price advantage compared to imports
○ It protects new businesses from being swamped by international competition from MNEs
○ The government gain tax revenue
What are disadvantages of tariffs
○ High import price won’t put many customers off
○ tariff may just increase the price for customers
○ Other countries may impose their tariffs in response to this on their imports
What is the ideal way that a pressure group is meant to flow. From the perspective of a pressure group
○ Pressure group start a campaign against the business
○ Consumers have new information about the product and now don’t trust the brand
○ Revenues fall, sales fall, profits fall
○ Business changes the way it trades - to be more ethical
Define ethics
○ The understanding of morals and right and wrong
○ Practices that are flowing by choice not law
What are the advantages of businesses acting ethically
○ Brand image ○ Personal satisfaction ○ Motivated workers ○ More loyal customer ○ Attract employees ○Avoid legal issues
What are the disadvantages of businesses acting ethically
○ Costs increase
○ Need to learn cultural differences
○ Time to implement and train staff
○ Company is restricted in what they can do
What is a trade-off
A compromise between one thing and another
Define pressure group
Organisations set up to try to influence what consumers think about the business and its environment
