2.1 | Growing the business Flashcards
define organic growth
When a business grows by expanding internally by its own activities
give 4 methods of organic growth
- targeting new markets
- developing new products
- franchising
- e-commerce
give three ways a business targets new markets and an impact of each
- e-commerce: to increase exposure and sales
- new machinery allows for economies of scale as items are cheaper to produce so firms can lower prices and target lower income markets
- set up branches in other countries and adapting the marketing mix ( promotion/ price) to appeal to new consumers
give two ways a business can develop new products and an impact of each
- by conducting research and development resulting in innovation ( a new product)
- expanding product portfolio which targets a larger range of customers and increase sales
give two advantages and 1 disadvantages of organic growth
- Less disruptive changes mean workers’ efficiency, productivity & morale remain high
- Less risk - expanding by doing what the business is good at
disadvantages: - slow growth as it can take time to adapt to changes in the market
define inorganic growth
when a business expands externally by joining with another business
give two methods of inorganic growth and define them
- merger: when two businesses join to form a new but larger business
- takeover: occurs when an existing business expands by buying more than half the shares of another business.
give 3 ways a business can merge with others and an advantage of each
- join with a supplier:
- allows a firm to control supply, cost and quality - join with a competitor:
- bigger market share - join with an unrelated firm:
- diversifying into new markets as well as reducing risk
Give two disadvantages of inorganic growth
disadvantages:
- management styles differ leading to lower motivation and slower integration for workers
- leads to cost cutting and high redundancy rates leading to tension and uncertainty among workers
Define economies of scale and two ways it can be done
When a business’ output levels increase and so its average cost per item produced is cheaper
- advanced machinery
- bulk buying
give 3 impacts of economies of scale (1N+2P)
- makes more profit on each item
- lower manufacturing costs thus lower prices attracting more customers
- needs more warehouse space leading to higher fixed costs
define diseconomies of scale
when a business grows beyond its capacity for management and so cost of production increases
give two ways diseconomies of scale occurs and its disadvantages
- the bigger the firm, the harder and more expensive it is to manage
- production process becomes more complex leading to slower decision making and lower productivity
give two internal sources of finance and define them
retained profits: profits that are reinvested in the business rather than being issued as dividends
fixed assets: firms can sell unwanted assets to raise cash
define dividends
a share of the profits paid to shareholders
give an advantage and disadvantage of retained profit
- quick and convenient as there is easy access to money
cons: - when used, it is not available for any future unforeseen problems the business might face
give two advantages and disadvantages of selling fixed assets
- convenient and quick
- can create space for more profitable assets
cons: - the business might not get the full market value of the assets or be able to sell them
the business may need the assets in the future
define internal and external sources of finance
internal: Capital found from within a business
external: capital found from outside a business
give two external sources of finance
- loan capital
- share capital
define share capital
money raised when a business becomes a private limited company by selling shares in return for capital.
give two advantages of share capital
- does not have to be repaid and no interest is applied
- a business can choose to whom it offers shares
give two disadvantages of share capital
- control of the business is diluted
- business is vulnerable to takeover
define loan capital
a lump sum of capital borrowed from a bank and paid back in instalments with interest.
give two advantages of loan capital
- easy and quick to access for established businesses
- can get a significant amount of money at one time
give two disadvantages of loan capital
- high levels of interest can increase costs
- banks may also ask for collateral (security) in case the business fails to make repayments
define stock market flotation
money raised when a business becomes a PLC by selling shares on the stock market ( to the public )
give two advantages of stock market flotation ( SMF)
- the shares don’t have to be repaid and no interest is applied
- the business can gain recognition
give two disadvantages of stock market flotation
- there is risk of losing control
- dividends have to be paid and business records are made public
what is a PLC?
a company which sells shares on the stock market. Public Limited Company
give three advantages of being a PLC
- ability to raise large additional finance through share capital and SMF
- the shareholders have limited liability
- the company can expand and diversify reaching economies of scale
give two disadvantages of being a PLC
- greater risk of a hostile takeover
- large amounts of profit must be shared with shareholders
define globalisation
- when companies operate internationally or on a global scale
define international trade
The process of buying from and selling to overseas countries
define imports
purchasing goods or services overseas and bringing them into another country
give two impacts of globalisation on imports ( N + P )
- firms have a larger market to buy from therefore being able to buy supplies more cheaply thus reducing costs and increase profits
- more competition thus more demand for cheaper products therefore the firm must lower prices to stay competitive
- less market share
give two impacts of globalisation on exports
- larger market to sell to abroad thus increasing sales and profits
- if the value of the pound is strong British firms that export products will have less sales as they may increase prices lowering customer appeal
give 2 advantages of globalisation on a business’ locations
p:
- easier to set up a business abroad reducing costs through transport ( by locating near raw materials or where labour is cheaper ( pay lower wages)
- increases brand awareness and product range due to a larger market
what is a multinational company and an impact on firms ?
- companies that operate in a number of countries around the world.
- increases competition
define the two barriers to trade
tariff- a tax on imports or exports of goods
trading blocs: a group of countries that work together to provide special deals for trading ie. without tariffs
give two impacts of tariffs n+p
p:
- domestic firms can stay competitive
c:
- more expensive to import goods
give two impacts of trading blocs
p:
promotes free trade without tariffs and quotas decreasing costs for a business
c:
Importing and exporting to countries outside the trading bloc can be expensive
give two ways a business can change to compete internationally
- use e-commerce by setting up websites
- change their marketing mix
give 3 advantages to e-commerce
- cheap to operate compared to physical stores
- reach wider markets and overseas customers
- access to cost-effective promotional methods like social media
give two ways a business can adapt the marketing mix to remain competitive abroad
- product: adapt their product to fit dietary requirements or cultural beliefs in one country
- price: may increase or decrease due to barriers to trade or varying income levels
give three ways a business can act more ethically and environmentally friendly
- pay fair wages and provide good working conditions
- use less packaging and recycle more
- use non toxic materials and not harm animals through animal testing
give three advantages to a business of acting ethically ( ways a business can do this then impact)
- consumers are more willing to pay a higher price as they place a high value on such products
- allows one to develop a good relationship with supplier if treated fairly and may offer you better payment terms
- by paying fair wages employees are more motivated to work and less likely to leave reducing recruitment and training costs
Give three disadvantages of a business acting ethically
- higher labour costs to maintain good working conditions and pay wages
- it is more difficult to find ethically sourced materials and its suppliers therefore higher costs - increased price- deter customers
- if the firm claims to be ethical but is not , it can damage brand reputation making investors more reluctant to associate with the firm
give three ways businesses contribute to climate change and how to change that
- producing waste that ends up in landfills leading to pollution : reduce waste
- produce noise and air pollution through factory work etc: reduce fossil fuel use
- act more sustainably through recycling or more efficient machinery
Give three advantages of a business acting environmentally friendly
- a green image can improve corporate image attracting customers and increasing sales
- a competitive advantage allows a firm to charge higher prices
- can reduce costs by reducing waste and reusing resources
Give two disadvantages of a business acting in an environmentally friendly way
- increase costs as it requires investment in sustainable production methods and raw materials
- greenwashing can harm business reputation and deter customers
define pressure groups and two things they do
- groups that try to influence the decisions made by businesses
- protests and ‘ boycotting’ a business
give two impacts of pressure group activity on the marketing mix
- product : change the product to use sustainable materials
- place: change distribution methods by using delivery vehicles that pollute less
