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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
Why might a business aim to Grow instead of Survive?
- 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
Why might a business change the Size of its Workforce?
- expanding, recruit more staff - takeover, reduce size of workforce (not have 2 people doing the same job)
27
Why might a business enter or exit new markets?
- 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
Why might a business change the size of its product range?
- 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
What External reasons may cause a business to change their aims and objectives?
- New legislation (new living wage) - Changes in market condition (grows + shrinks, competition) - Changes in technology (up to date, new equipment + training)
30
What Internal reasons may cause a business to change their aims and objectives?
- Performance (sales increase more than expected, change forecast) - Internal changes (changed in management, new priorities)
31
What is Globalisation?
The process by which businesses and companies around the world become more connected. - easier + common to import and export
32
What effects does Globalisation have on a business?
- Imports - Exports - Business location - Multinationals
33
What effect does Imports have on a business?
- larger market to buy from, buy supplies cheap (reduce costs) - more competition in a country, may reduce prices to stay competitive
34
What effect does Exports have on a business?
- Larger market to sell to (increases sales, higher profits)
35
What effect does Business Location have on a business?
- Easier to locate parts of business abroad (offices, factories, stores etc), allows reduced costs (closer to raw materials, less transport costs)
36
What effect does Multinationals have on a business?
= Single businesses operating in more than one country - If they enter the country, firms need to change their operations to compete successfully
37
How have the government tried to control international trade?
- Tariffs - Trade blocs
38
What are Tariffs + what effect do they have on a business?
- Taxes on good that are imported/exported - Make imports more expensive than products made in the country, helps domestic firms stay competitive
39
What are domestic firms?
Firms purely based in the country they originate in (no imports/exports of their products)
40
What are Trade blocs + what effect do they have on a business?
- 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
How can businesses compete internationally?
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
How do UK firms treat employees and suppliers in other countries?
- 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
How do businesses in the UK treat their staff fairly/ ethically?
- reward staff fairly - keep personal details private - provide comfortable working environment
44
What are other ethical issues for businesses?
- Following codes of practice (cannot be dishonest in adverts, cannot promote cigarettes) - Pressure to develop products ethically (non toxic materials, no animal testing)
45
What are the Benefits and Drawbacks to acting ethically?
- 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
How can businesses reduce their impact on the environment?
- 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
How do businesses impact the environment?
- 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
What are pros and cons of businesses being Eco-Friendly?
- 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
What are pressure groups?
Organisations that try to influence decisions made by businesses or the Government
50
How do pressure groups have an effect on businesses?
- 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
How can businesses reverse the effect of pressure groups on their image?
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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