2.1 - Growing a Business Flashcards
What is business growth
When a business sells more output (amount) over a period of time
Why is business growth an important objective (4)
- To help increase market share
- To improve profits
- To increase revenue
- To help a business to open more branches
In what ways can business growth occur (4)
- From employing more people
- From opening more branches
- From increasing sales or revenue
- From increasing profits
What is another name for Internal growth
Organic growth
When does Internal growth occur
When a business decides to expand its own activities by launching new products and/or entering new markets.
Why is it riskier to enter new markets instead of launching new products to achieve internal growth
As businesses have not dealt with this market before and it may be costly and expensive
What are some ways a business can enter a new market (3)
- Entering overseas markets
- Amending its marketing mix (product, price, place and promotion)
- Taking advantage of technology
What are some advantages of Internal (organic) growth (3)
- It is low risk
- A business can maintain its own values without interference from stakeholders
- Higher production means the business can benefit from economies of scale and lower average costs
What are some disadvantages of Internal (organic) growth (3)
- It is quite slow
- there maybe be a long period between investment and return on investment
- growth may be limited and is dependent on the reliability of sales forecasts
What is another name for external growth
Inorganic Growth
What does inorganic growth usually involve
a merger or takeover
What is a merger
Two businesses joining to form a new (but larger) business.
What is a takeover
An existing business expands by buying more than half the shares of another business.
What is Horizontal intergration
Two competitors joining through a merger or takeover.
The new business then becomes more competitive and increases its market share.
This gives it more control when negotiating and setting prices.
What is forward vertical integration
Business takes control with another that operates at a later stage in the supply chain.
What is Backward vertical integration
a business takes control of a business earlier in the supply chain.
What is Conglomerate integration
businesses in unrelated markets join through a takeover or merger.
This enables businesses to spread their risk over a wider range of products and services.
What are some advantages of external (inorganic) growth (2)
- competition can be reduced
- market share can be increased very quickly overnight
What are some disadvantages of external (inorganic) growth (2)
- it can be expensive to takeover/merge with another business
- managers may lack the experience to deal with the other businesses
What are some advantages of being a PLC (3)
- The business has the ability to raise additional finance through share capital
- The shareholders have limited liability
- There are increased negotiation opportunities with suppliers in terms of prices because larger businesses can achieve economies of scale
What are some disadvantages of being a PLC (3)
- It is expensive to set up, requiring a minimum of £50,000
- There are more complex accounting and reporting requirements
- There is a greater risk of a hostile takeover by a rival company
What are 3 internal sources of finance
- Retained profits
- Selling of assets
- The owners saving
What is an advantage and disadvantage of retained profits
it is cheap, quick and convenient, and there is easy access to the money
But once the money is gone, it is not available for any future unforeseen problems the business might face
What is an advantage(1) and disadvantage (2) of selling assets
It is convenient, can create space for more profitable uses, and can be quick
- The business might not get the full market value of the assets or even sell them at all
- The business might also need the assets in the future
What is an advantage and disadvantage of using the owners savings
- it is cheap, quick and convenient
- But the owner might not have enough savings or may need the cash for personal use
What are 3 external sources of finance
- Loan capital
- Share capital - when a business becomes a PLC and offers shares to a select group of people
- stock market flotation - PLC only
What is an advantage(1) and disadvantage(3) of using Loan capital
- regular repayments are made over a period of time
- sometimes it can take a while for a loan to be approved and the business may not even qualify for a loan
- Interest is applied, so this can be an expensive option
- banks may also ask for collateral (security) in case the business fails to make repayments
What is an advantage(2) and disadvantage(1) of using share capital
- does not have to be repaid and no interest is applied
- a business can choose to whom it offers shares
- profits made by the business are paid to shareholders (these payments are also known as dividends), so control of the business gets diluted
What is an advantage(3) and disadvantage(3) of stock market floatation
It can raise large amounts of capital as it is easy for the public to buy shares through a stockbroker or bank
the shares don’t have to be repaid and no interest is applied
the business can also gain recognition through this method
But:
it can be complicated and expensive and there is the possibility of losing control, as anyone can buy shares
the profits are paid to shareholders and the business records are made public
there is also the risk that some investors will only buy shares to make a quick profit by selling them when the share price increases
What are the 9 main reasons why business aims and objectives change
- Due to new or changing market conditions
- Due to new or changing technology
- As a response to performance
- Due to legislation
- Due to internal reasons
- For survival purposes
- To enter or exit markets
- To grow or reduce workforce
- to increase or decrease product range
What is an aim
An overall goal for a business
what is an objective
a step needed to achieve your aims
What does the term market conditions refer to (3)
- The size of the market
- The competitors in the market
- the proportions of large and small businesses in the market
What are some commons technological developments
- website developments
- manufacturing developments
- software developments
- mobile technology developments
- contactless, online, and mobile payment system developments
What are the 2 types of business who mainly focus on survival
- new businesses in their first year of operation
- established businesses under threat, for example from their competitors
Why would a business want to exit a market (4)
- If the size of the market is shrinking
- Their products in the market have a poor performance
- A new market opening up
- The business failing overall
Define globalisation
companies operating internationally or on a global scale
What are the 3 main elements of globalisation
Imports
Exports
Business location
What are the 2 main reasons for imports from other countries
- If they cannot easily be manufactured in the UK eg Mangoes
- If it is cheaper to buy from other countries eg. buying products from china or india due to cheap labour cost s
What does SPICED stand for
Strong Pound Imports Cheaper Exports Dearer
Remember it’s the opposite if the pound is weak
What are 4 advantages of increasing the scale of a business’s operations
- More potential customers
- Potential of more sales and profit
- Potential to grow product range
- Increased brand awareness
What are 3 disadvantages of increasing the scale of a business’s operations
- More responsibility
- More risk
- Potential for failure
What are Multinational companies/ Transnational corporations
companies that operate in a number of countries around the world.
What are the 2 main barriers to international trading
- Tariffs
- Trading blocs
What are Tariffs
A tax on imported goods and services
This restricts demand and promotes/ protects businesses in the home country
This is known as a protectionist measure
What are Trading blocs
A group of countries that work together to provide special deals from trading promoting trading between them eg the EU
No tariffs within trading blocs but outside can be expensive tariffs
can only be apart of one trading bloc
What are advantages of E-commerce
- open 24/7
- cheap to operate compared to physical stores
-gives access to a huge range of potential customers
easy to sell to overseas customers
-provides access to cost-effective promotional methods, such as social media and email advertisements
How is each aspect of the marketing mix affected by international trading
Product - Have to be aware of others faiths eg. colours and dietary requirements
Price - Tariffs and trading blocs can increase the price. Also different countries have different levels of disposable income
Place - E-commerce may not be available everywhere and distribution links may be weak in some countries
Promotion - cultural and social differences, language and translations
What are 3 examples of treating workers ethically
paying a fair wage
providing good working conditions
allowing flexible working
What are 3 examples of treating suppliers ethically
paying fair prices
having reasonable expectations
paying bills on time
What are 3 examples of treating Customers ethically
exceeding expectations eg. offering excellent quality
only providing what a customer needs - not costly extras
Giving clear and accurate information
What are 3 advantages of being environmentally friendly
- The government will offer you subsidies and grants
- Lower costs eg electric cars
- Increased sales
What are 3 disadvantages of being environmentally friendly
- Increased costs eg research and new methods of production
- Time consuming
- potential for inaccurate claims eg. saying you use no plastic but there are traces found
How can pressure groups/ interest groups impact the marketing mix
product - change the product
price - change pricing strategies
place - change distribution methods
promotion - change the way a product is advertised
