2.1- Growing the business Flashcards
Adv of being a PLC? Disadv? (4)
Adv:
- ability to raise additional finance.
- limited liability.
- seen as more prestigious, and potentially more reliable.
- negotiate better deal with suppliers.
Disadv:
- more complex accounting and reporting procedures.
- risk of hostile takeovers.
- increased media attention.
- less privacy in regards to financial performance.
How does a multinational business come to be?
As a business grows, it may decide to expland into new countries, either selling or producing its raw materials for its product, resulting in it to become a multi-national business.
Adv (4) and disadv of multinational business?
Adv:
- wider target market.
- ability to take adv of cheaper labour and utilities abroad.
- can spread risk between operations in diff countries.
- reputation is greater as market leader.
Disadv:
- loss of focus on key markets.
- cultural and language differences between countries.
- uncertainty regarding profits based on exchange rates that change regularly.
- potential damage to reputation if found to be operating unethcally.
What is internal growth?
How can internal growth be achieved?(2)
Internal growth occurs when a business expands by itself by bringing out new products or by entering new markets- it’s also known as organic growth.
1) Introducing new products.
2) Entering new markets.
How can a business bring out new products?(2)
- research and development is the process by which a business researches new products and starts to produce them yet this innovation can be relatively high risk as R& D takes time, can be expensive and does not always succeed.
- innovation should be informed by market research- to ensure customers have a need to have the product before researching and developing it and making sure the product will meet their needs.
How can a business enter new markers(4)
Disadv?
- entering new markets by selling existing products to a new group of people.
- can be achieved by changing elements of the mm such as an extension strategy on an existing product or changing the promotion strategy in order to attract new customers.
- reach new markets by taking advantage of technological developments eg through e-commerce allowing business to reach new markets abroad-> reduces the cost of setting a retail store in another country
- however, there is a risk as the business may not understand the wants and the needs of its new customers and therefore may not succeed in that market.
What is external growth?
2 forms?
- occurs when a business expands by joining with another business= inorganic growth:
1) Mergers
2) Takeovers.
What is a merger?
A takeover?
1) A merger: two or more businesses agree to join together and operate as a combined business- new business is formed to represent the merged businesses.
2) Takeover: occurs when one business takes complete control ove another business and following a takeover, one of the business will no longer exist
What is gloablization?
What are the 3 ways globalisation is affected?
many businesses operate across a number of countries and globalization is the process by which more and more businesses operate on an international scale; selling to, buying from and operating in multiple countries.
1) Imports
2) Exports
3) Business locations.
How does imports affect globalization?(2)
- the arrival of imports in the country creates competition for domestically produced goods and can have a neg demand for domestically produced good and therefore on the profits of domestic businesses
- however, a business can stock a wide range of material or products to sell on to domestic customers or to make own products-allow business to stock a wider range of products or buy the raw materials for its own products more cheaply than if purchased domestically
How does exports affect globalization?
- being able to export goods from abroad countries provide domestic businesses with a wider target market, as it gives them the oppour to sell their goods and services around the world- allows to engage in international markets.
How does business location affect globalization?(2)
- businesses may locate their manufacturing fascilities abroad, usually to take adv of cheap labour and utility costs.
- allow business to open outlets abroads and enter new markers.
What’s a tarrif?(2)
- a tax imposed on imports or exports and makes a product or service more expensive with the aim of reducing the demand for imported goods and switching to domestically produced goods
- protectionist measure put in place to protect county’s buinessmen and employment by reducing comp from abroad
What’s a trading bloc?
-Another barrier- created when the govs of diff countries agree to act together to promote trade among themsleves and encourage trade between the countries without additional taxes being charged on goods and services eg EU
Why can a trading bloc be beneficial?
- benefit from sharing workers, knowledge and expertise.
- production can be more efficient as diff coutnries can specialise in making particular goods and sercies, which could lower the cost of these products in all members nations.
- businesses may be able to change location within the tradic bloc to benefit from economic variations between member countries eg lower tax rates or wages.
