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Business > 2.1 Growing the Business > Flashcards

2.1 Growing the Business Flashcards

1
Q

What is Internal growth?

A

When a business grows by expanding its own activities

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2
Q

What are advantages and disadvantages of Internal growth?

A
  • relatively inexpensive
  • expanding by developing existing products, low risk
  • slow growth: keeps quality, new staff trained

-slow: not good for fast growth

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3
Q

What are methods of organic/internal growth?

A

Targeting new markets:
- business aims to sell products to new markets they havent yet targeted

Developing new products

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4
Q

How can a business grow by targeting new markets?

A
  • Use new technology (e-commerce, reduce costs then prices)
    -Set up branches in other countries
    -Change the marketing mix (price, place, promotion, product)
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5
Q

How can a business grow by developing new products?

A
  • increases sales, allows growth
  • innovation, result of research and development
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6
Q

What is external growth?

A

Usually involves a merger or takeover

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7
Q

What is a merger?

A

2 firms join together to form a new, larger firm

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8
Q

What is a takeover?

A

An existing firm expands by buying more than half the shares in another firm

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9
Q

How can a firm merge or take over other firms?

A
  • Join with a supplier
  • Join with a competitor
  • Join with a customer
  • Join with an unrelated firm
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10
Q

What does a firm joining with a supplier help them with?

A

Can control supply, cost and quality of raw materials

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11
Q

What does a firm joining with a competitor help them with?

A

Gives firm a bigger market share-> stronger competitor

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12
Q

What does a firm joining with a customer help them with?

A

Greater access to customers, more control over price the product is sold on the marker as

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13
Q

What does a firm joining with an unrelated firm help them with?

A

Expands by diversifying into new markets, reduces risk of small product range

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14
Q

What are the disadvantages of External/inorganic growth?

A
  • less than half of takeovers and mergers are successful (management style)
  • create bad feeling
  • lead to cost cutting (redundancy, increases tension + uncertainty amongst workers)
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15
Q

What is the benefit to larger firms of expanding?

A

Economies of scale:
- when a firm expands, output increases
- costs also increase, but at a slower rate than output
- therefore average cost of one product is cheaper once firm has expanded (average unit cost decreases)

  • thus they make more profit on each item
  • can afford to charge their customers less, increases amount of customers
    -reinvested profit, further expand the business
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16
Q

What is Economies of scale?

A
  • When a firm’s average unit costs decrease
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17
Q

Why does Economies of scale occur?

A
  • Larger firms need more supplies, buy in bulk, cheaper unit price (compared to a small firm)
  • Can afford to buy and operate more advanced machinery, processes faster + cheaper (ie less staff)
    -Law of increased dimension (factory 10x bigger = 10x less expensive)
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18
Q

What is Diseconomies of scale?

A

Areas of growth that can lead to increases in average unit costs

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19
Q

What are examples of Diseconomies of scale?

A
  • larger the firm, more expensive to manage properly
  • more people, harder to communicate within company. (decisions take time to reach whole force, workers lower down feel insignificant, less productivity)
  • production process becomes more complex, difficult to coordinate)
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20
Q

What are Internal sources of Finance for Large businesses?

A

Retained profit:
- reinvest profits back into the business after paying dividends.
- large companies (PLCS etc), pressure to give large dividends, reducing retainable profits

Fixed assests:
- sell fixed assets (machinery/buildings etc) that are no longer used.
- limit to how many can be sold, otherwise you can no longer trade

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21
Q

What are External sources of Finance for large businesses?

A

Loan Capital:
- Take out bank loans and pay money back over a fixed period of time with interest
- Banks need security (ie assests like property), assets can be sold to pay back loan. Can take out larger loans as they have more valuable assests that small businesses
- Established business= easier, banks see them as less risky than new firms

Share Capital:
- Money raised if a business becomes a PLC or LTD and sells shares of the business
- Doesn’t need to be repaid
- Original owners get smaller share of business profit, can lose control of how its run

22
Q

What are advantages of becoming a PLC?

A
  • More capital raised than any other kind of business
  • Helps company expand + diversify
  • limited liablity
23
Q

What are disadvantages of becoming a PLC?

A
  • Hard to get large number of shareholders to agree on how business is run (unless they own lots of the shares)
  • Someone can buy enough shares to takeover the business
  • Accounts have to be made public (can see if they’re struggling)
  • Can have 100’s or 1000’s of shareholders
24
Q

How can a businesses aims and objectives change over time?

A
  • Aims to Grow instead of Survive
  • Enter or exit New Markets
  • Change size of Workforce
  • Change size of Product Range
25
Q

Why might a business aim to Grow instead of Survive?

A
  • New, start up businesses are focused on survival
  • Once it is stable, aims may be about growth and maximising profits (for reinvestment)
  • If economy changes, business may start struggling, start to focus on surviving
26
Q

Why might a business change the Size of its Workforce?

A
  • expanding, recruit more staff
  • takeover, reduce size of workforce (not have 2 people doing the same job)
27
Q

Why might a business enter or exit new markets?

A
  • targeting a different group in the same location
  • sell in a new location
  • business is growing
  • business’ existing market is shrinking
  • exit market, find new place to sell items
28
Q

Why might a business change the size of its product range?

A
  • well selling product-> bring out more products of same range with different features
  • badly selling product-> decrease product range, focus on promoting best-selling products
29
Q

What External reasons may cause a business to change their aims and objectives?

A
  • New legislation (new living wage)
  • Changes in market condition (grows + shrinks, competition)
  • Changes in technology (up to date, new equipment + training)
30
Q

What Internal reasons may cause a business to change their aims and objectives?

A
  • Performance (sales increase more than expected, change forecast)
  • Internal changes (changed in management, new priorities)
31
Q

What is Globalisation?

A

The process by which businesses and companies around the world become more connected.
- easier + common to import and export

32
Q

What effects does Globalisation have on a business?

A
  • Imports
  • Exports
  • Business location
  • Multinationals
33
Q

What effect does Imports have on a business?

A
  • larger market to buy from, buy supplies cheap (reduce costs)
  • more competition in a country, may reduce prices to stay competitive
34
Q

What effect does Exports have on a business?

A
  • Larger market to sell to (increases sales, higher profits)
35
Q

What effect does Business Location have on a business?

A
  • Easier to locate parts of business abroad (offices, factories, stores etc), allows reduced costs (closer to raw materials, less transport costs)
36
Q

What effect does Multinationals have on a business?

A

= Single businesses operating in more than one country

  • If they enter the country, firms need to change their operations to compete successfully
37
Q

How have the government tried to control international trade?

A
  • Tariffs
  • Trade blocs
38
Q

What are Tariffs + what effect do they have on a business?

A
  • Taxes on good that are imported/exported
  • Make imports more expensive than products made in the country, helps domestic firms stay competitive
39
Q

What are domestic firms?

A

Firms purely based in the country they originate in (no imports/exports of their products)

40
Q

What are Trade blocs + what effect do they have on a business?

A
  • Groups of countries that have few or no trade barriers between them (trade without paying tariffs)
  • Firms from outside these blocs will find it hard to compete (tariffs affect prices)
41
Q

How can businesses compete internationally?

A

Use E-commerce :
-internet
- compete without stores + infrastructure in foreign countries (lower costs)

Change their Marketing Mix in different countries:
- change prices to stay competitive
- target products or promotion at country’s culture
-McDonalds have different menus in different countries to appeal to the customers

42
Q

How do UK firms treat employees and suppliers in other countries?

A
  • Some countries, legal to work very long hours with very little pay. Set up factories in these countries to reduce labour costs (unethical, exploits workers)
  • Can write codes of conduct for factories overseas, ensuring workers are treated ethically (limit number of hours, carry out checks to ensure its followed)
    -Buy raw materials from developing countries, can choose fair trade products
43
Q

How do businesses in the UK treat their staff fairly/ ethically?

A
  • reward staff fairly
  • keep personal details private
  • provide comfortable working environment
44
Q

What are other ethical issues for businesses?

A
  • Following codes of practice (cannot be dishonest in adverts, cannot promote cigarettes)
  • Pressure to develop products ethically (non toxic materials, no animal testing)
45
Q

What are the Benefits and Drawbacks to acting ethically?

A
  • Ethical policies can be costly (fair wages = higher labour costs)
  • Ethically sources materials (harder to find suppliers, more expensive)
  • Less profit on each item (higher prices may lead to less profit as well)
  • Change marketing to emphasise strong ethical policies (gain customers, increase profits-> ethical is more important to those than price)
  • Positive effect on stakeholders (shareholders more likely to invest, workers more motivated)
46
Q

How can businesses reduce their impact on the environment?

A
  • use less packaging, recycle more-> less landfill waste
  • dispose of hazardous waste carefully (doesn’t pollute land or water)
  • efficient machinery (less air pollution, quieter machinery (less noise pollution)
  • more renewable energy resources (solar, wind)
  • more energy efficient electrical goods
47
Q

How do businesses impact the environment?

A
  • Waste-> ends up in landfill
  • Factories, cars, lorries (air, noise and water pollution)
  • Global businesses combined impact damages the earth (non-renewable resources + business activities release CO2)
48
Q

What are pros and cons of businesses being Eco-Friendly?

A
  • Consumers change their buying habits to become more eco-friendly
  • Gives firm competitive advantage, attracts new customers (green image)
  • Trade of between being sustainable and profit (New equipment + developing new processes for sustainability= expensive, less profit)
  • have to weigh up pros and negative effects on profit
49
Q

What are pressure groups?

A

Organisations that try to influence decisions made by businesses or the Government

50
Q

How do pressure groups have an effect on businesses?

A
  • The group may run campaigns against certain firms or industries (highlight ethical + environmental issues), has an effect on the view customers hold of them, gain bad rep and lose customers
51
Q

How can businesses reverse the effect of pressure groups on their image?

A

Change their marketing mix
- Change products (materials become ethically sourced)-> supermarkets reduce food waste by selling imperfect food at a discounted price.

Run a promotional campaign
- repair negative publicity

Business (11 decks)

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