2.1 - Growing the Business

Question 1

2.1.1 - What is internal (organic growth) and what are the examples of this?

Answer 1

Internal growth is when a business grows by expanding on its own without mergers or takeovers from other businesses.

• New products
  
  • Innovation
  • Research
  • Development
• New markets
  
  • Through changing the marketing mix
  • Taking advantage of technology
  • Expanding overseas

Question 2

2.1.1 - What is external (inorganic growth) and what are the examples of this?

Answer 2

When a business combines with another to grow.

• Takeover: When one business joins another
• Merger: When two ore more businesses join together

Question 3

2.1.1 - What are the advantages and disadvantages of a business going through organic (rather than inorganic) growth?

Answer 3

PROS:

• A business that grows from within can retain their own company culture
• Higher production means the business can benefit from economies of scale and lower average costs
• More influence comes with more market share, the business can start setting prices for the industry

CONS:

• This is a very high risk strategy, opening lots of stores or taking on new staff is very risky
• Long period between investment and return on investment
• Growth may be limited and is dependent on reliability of sales forecasts

Question 4

2.1.1 - Describe how economies of scale work.

Answer 4

When your costs decrease due to larger levels of production:

• More products being produced means more materials being ordered more regulalry
• Bulk orders reduce price
• Variable cost per unit reduced

Question 5

2.1.1 - What are the advantages and disadvantages of a business mergers?

Answer 5

PROS:

• Economies of scale. Better deals because of increased order size, bulk-buying discounts etc.
• Increased revenue and market share.
• Buying technology
• International Expansion. Buying a business in another country helps with culture issues, foreign laws etc.

CONS:

• Clash of cultures
• Possible communication problems
• Unreliable merger partners
• Diseconomies of scale. As a business gets larger costs will go up with problems of motivation, communication and co-ordination

Question 6

2.1.1 - What is an internal source of finance and what are examples of this?

Answer 6

Capital gained within a business.

• Retained Profit
• Selling Assets
• Personal Savings

Question 7

2.1.1 - What is an external source of finance and what are examples of this?

Answer 7

Capital gained outside a business.

• Loan capital
• Share capital
• Stock market floatation

Question 8

2.1.1 - What are the pros and cons of loan capital?

Answer 8

PROS:

• Improve cash flow
• Financial advice

CONS:

• Time for approval
• Interest
• Expensive
• Collateral

Question 9

2.1.1 - What are the pros and cons of share capital?

Answer 9

PROS:

• Large amounts of capital
• No interest
• Does not need to be repaid

CONS:

• Loss of control

Question 10

2.1.1 - What is a public limited company?

Answer 10

When a private limited company (a business owned by its shareholders) makes shares available to the public to purchase. This process is stock market floatation

Question 11

2.1.1 - What are the pros and cons of stock market floatation?

Answer 11

PROS:

• Large amounts of capital
• No interest
• Does not need to be repaid

CONS:

• Loss of control (As all the shareholders vote on desicions)

Question 12

2.1.3 - What is Globalisation?

Answer 12

The ever-increasing integration of the world’s local, regional and national economies into a single international market.

Question 13

2.1.3 - What are the advantages and disadvantages of globalisation?

Answer 13

PROS:

• Impact on productivity and competition
• Specialisation
• Impact on growth rates, inflation, balance of payments and unemployment
• Economies of scale
• Impact on inflation

CONS:

• Impact on unemployment
• Impact on balance of payments
• Dominance of US corporate culture ‘McDonaldisation‘

Question 14

2.1.3 - What are imports and exports?

Answer 14

• An import is the purchase of a good or service from a foreign business that leads to a flow of money out of the UK.
• The UK buyer will have to change pounds into the seller’s currency to make the transaction.
• An export is the sale of a good or service to a foreign buyer that leads to a flow of money into the UK.
• The foreign buyer will have to change their currency into pounds to complete the purchase.

Question 15

2.1.3 - What is a multinational company?

Answer 15

Companies that own or control production or service facilities outside the country in which they are based.

Question 16

2.1.3 - What are tarrifs?

Answer 16

• A tariff is a tax placed on an import to increase its price and decrease its demand (goods that cost too much don’t sell well).
• Tariffs can be imposed by governments to raise revenue and to restrict imports.
• Tariffs help to persuade consumers will switch and buy UK made goods.

Question 17

2.1.3 - Why are tarrifs important for the UK’s economy in terms of exports and imports?

Answer 17

Tarrifs encourage less imports meaning there will be relatively more exports.

As exports are incoming money and exports are outgoing money, a decrease in imports means the UK will make more money

Question 18

2.1.3 - What are the advantages and disadvantages of tarrifs?

Answer 18

PROS:

• UK produced goods do not have to pay the tariff and so are likely to be cheaper allowing UK businesses to gain a price advantage compared to imports
• It can protect new businesses from being swamped by international competition from MNEs
• It can raise important tax revenue for government which can be spent possibly on infrastructure (bridges and roads)

​CONS:

• High import price won’t put many customers off
• Tariff may just increase prices for consumers
• Other countries may impose their tariffs in response to this on their imports, (e.g. when the UK exports to China they make our goods more expensive)

Question 19

2.1.3 - What are Trade Blocs and some common examples?

Answer 19

A trade bloc is a group of countries who make a trade agreement not to place tariffs on imports from each other.

• EU
• NAFTA
• ASEAN

Question 20

2.1.3 - How may businesses compete internationally through the internet, e-commerce, and changing their marketing mix?

Answer 20

• Place: selling online through e-commerce and having international shipping for products means businesses can reach more places internationally. Alternatively they may do this by becoming a multinational company (expensive)
• Promotion: Social media is a better way to promote through the internet as it has an international range at a low cost. Promotion techniques (e.g. targeted advertising) may aslo be used with this
• Price: lowering their prices so that despite any tarrifs that are placed on them they still have competetive pricing
• Product: Making their product more adaptable to foreign countries

Question 21

2.1.3 - What are the advantages and disadvantages of trade blocs?

Answer 21

PROS:

• A larger target market
• Cheaper imports from EU countries
• Economies of scale
• Easier to recruit labour

CONS:

• More competition for UK businesses
• Imports may be more expensive from non-EU members.
• Tariffs on UK exports from non-EU members

Question 22

2.1.4 - What are ethics in terms of business?

Answer 22

The understanding of morals and right and wrong.

In a business context to be ethical is to pay workers a fair wage, to not pollute and to conduct business in way which does not harm or exploit people or the planet.

Question 23

2.1.4 - What is a trade-off?

Answer 23

• A trade-off is a compromise between one thing and another
• There has to be a trade-off or compromise between making a profit and being ethical so everyone is happy

Question 24

2.1.4 - What is a pressure group and what actions do they take?

Answer 24

Pressure groups are organisations set up to try to influence what consumers think about the business and its environment.

• The write letters to MPS
• They write to the press
• They organise marches
• They run campaigns

Question 25

2.1.4 Why is it important for a business to be ethical?

Answer 25

So that they produce an ethical brand image. An unethical brand image can lead to bad publicity which may cause people to boycott their business leading to a deacrease in revenue

Question 26

2.1.4 - How may businesses create sustainable products?

Answer 26

By manufacturing products in ways that don’t harm the environment.

E.g. using renewable energy sources and not wasting raw materials