2.1 - Growing the Business Flashcards
1
Q
What are there loads of?
A
+There are loads of big businesses out there - but all of them have had to grow at some point.
+You need to need to know about internal and external growth.
2
Q
What kind of growth is low risk?
A
+Internal growth is low risk but can be slow.
3
Q
What is internal growth?
A
+Internal growth [or organic growth] is when a businesses grows by expanding its own activities.
4
Q
What are the advantages of internal growth?
A
+Internal growth is good as it’s relatively inexpensive.
+Also, it generally means the firm expands by doing more of what it’s already good at - making its existing products; so it’s less likely to go wrong.
+The firm grows slowly, so it’s easier to make sure quality doesn’t suffer and new staff are trained well.
5
Q
What is the downside of internal growth?
A
+But because internal growth is slow, it won’t be right for a business to grow quickly.
6
Q
What are the two methods of organic growth?
A
- Targeting new markets
- Developing new products
7
Q
What is the method of organic growth “Targeting new markets” all about?
A
- This is when a business aims to sell its products to people who it hasn’t tried to sell to before.
- Firms can use new technology to target new markets - eg. they could use e-commerce so people can buy products even if they don’t live near a store.
- Technology may also mean items are cheaper to produce, so a firm might be able to lower its prices and target a lower income market.
- A firm could also set up branches in other countries so they can sell directly in markets abroad.
- They could also change the marketing mix of the product [eg. the price or the way its promoted] so that it appeals to a new market.
8
Q
What is the method of organic growth “Developing new products” all about?
A
- Selling a brand new product will increase sales for a business, allowing it to grow.
- To sell a new product, firms need innovation - this is when someone comes up with a new product of way of doing things.
- Often, innovation comes about as a result of research and development.
9
Q
What kind of growth is fast?
A
External growtht is faster but more risky
10
Q
What is External growth?
A
+External growth [inorganic growth] usually involves a merger or takeover.
11
Q
What is a merger?
A
+A merger is when two firms join together to form a new [but larger] firm.
12
Q
What is a takeover?
A
+A takeover is when an existing firm expands by buying more than half the shares in another firm.
13
Q
What are the ways a firm can merge with or takeover other firms?
A
+There are four basic ways a firm can merge with or take over other firms.
- Join with a supplier
- Join with a competitor
- Join with a customer
- Join with an unrelated firm
14
Q
What happens when a firm joins with a supplier?
A
+This allows a firm to control the supply, cost and quality of its raw materials.
15
Q
What happens when a firm joins with a competitor?
A
+This gives the firm a bigger market share, so it will be a stronger competitor.
16
Q
What happens when a firm joins with a customer?
A
+This gives the firm greater access to customers and more control over the price at which its products are sold to the end-user.
17
Q
What happens when a firm joins with an unrelated firm?
A
+This means the firm will expand by diversifying into new markets.
+This reduces the risks that come from that come from relying on just a few products.
18
Q
How successful are takeovers and mergers?
A
+Less than half of all takeovers and mergers are successful.
+It’s very hard to make two different businesses work as one - Management styles often differ between firms.
+The employees of one firm may be used to one company culture and not be motivated by the style used in the other.
19
Q
What can mergers and takeovers create?
A
+Mergers and takeovers can create bad feeling, especially if the firm didn’t agree to being taken over.
20
Q
What do mergers and takeovers often lead to?
A
+Mergers and takeovers often lead to cost-cutting.
+For example, there’s no point a business having two head offices - the business will have lower fixed costs if it just has one.
+This cost cutting may mean making lots of people redundant, so it can lead to tension and uncertainty among workers.
21
Q
What do Larger firms benefit from?
A
+Larger firms benefit from economies of scale
22
Q
What happens to a firm when it expands?
A
+When a firm expands, its output [the amount of products it makes] will increase.
+It costs will also increase - Eg. variable costs will increase as the firm has to buy more raw materials and fixed costs might increase if the firm has more buildings or staff.
23
Q
In larger firm, often how will costs increase in proportion to output?
A
+Often, however, costs will increase at a slower rate than output.
+This means that the average cost of making one product [the average unit cost] is cheaper once the firm has expanded.
+These reductions in average unit cost are called economies of scale.
24
Q
What are economies of scale?
A
+A reduction in average unit cost that comes from producing on a large scale.
25
Why does Economies of scale happen?
* Larger firms need more supplies than smaller firms, so will buy supplies, so will buy supplies in bulk - this normally means they can get them at a cheaper unit price than a small firm.
* Larger firms can afford to buy and operate more advanced machinery than smaller firms which may make processes faster or cheaper to run [eg. they might not need so many staff].
* The law of increased dimensions means that, eg. a factory that's ten times as big will be less than ten times as expensive.
26
What happens as the average unit cost of making each product is lower?
+As the average unit cost of making each product is lower, firms can make more profit on each item they sell.
+Also, lower average unit costs mean larger firms can afford to charge their customers less for products than smaller firms can.
+This may make customers more likely to buy their products, leading to increased sales and more profit.
+The profits can be reinvested into the business so it can expand even more.
27
What is the opposite of economies of scale?
Diseconomies of scale
28
What is the downside of growth for larger firms?
+It's not all good news for large firms though - growth brings with it the risks of diseconomies of scale.
29
What are diseconomies of scale?
+These are areas where growth can lead to increases in average unit costs. Eg:
* The bigger the firm, the harder and more expensive it is to manage it properly.
* Bigger firms have more people, so it can be harder to communicate within the company - Decisions take time to reach the whole workforce, and workers at the bottom of the organisational structure feel insignificant; workers can get demotivated, which may cause productivity to go down.
* The production process may be more complex and more difficult to coordinate - Eg. different departments may end up working on very similar projects without knowing.
30
How can large businesses raise money?
+Large businesses can use funds from Internal sources or external sources.
31
What are the internal sources of finance for large businesses?
* Retained Profits
* Fixed Assets
32
What are retained profits?
+These are profits that the owners have decided to plough back into the business after they've paid themselves a dividend.
+But larger companies [eg. PLCs] are under pressure from shareholders to give large dividends, reducing the profit they can retain.
33
What are fixed assets?
+Firms can raise cash by selling fixed assets [assets that a business keeps long-term, eg. machinery/buildings] that are no longer in use.
+There's a limit to how many assets you can sell, though - sell too many and you can't go on trading.
34
What are the external sources of finance for a business?
* Loan Capital
* Share Capital
35
How can large firms get loan capital?
* Small businesses can take out loans - they then pay the money back over a fixed period of time with interest.
* Banks need security for a loan, usually in form of assets such as property - If things go wrong, these assets can be sold to pay back the loan.
* Large firms can normally take out larger loans than small firms, as they usually have more valuable assets.
* Also, established firms may find it easier to get loans than new firms because they can prove to the bank that they've been profitable over a longer period of time - this means banks will see them as less risky.
36
How can large firms get share capital?
+If a business becoms a limited company it can be financed using share capital - money raised by selling shares in the business.
+Finance from share capital doesn't need to be repaid [unlike a loan].
+However, selling shares means that the original owner[s] will get a smaller share of the business's profits and lose some control over how the business is run.
37
What can public limited companies do?
Public limited companies can sell shares on a stock market.
38
As a business grows. what might the owners decide to make it?
+The owners might decide to make it public limited company [a PLC].
+'Public' means that shares in the company are traded on the stock market, and can be bought and sold by anyone.
+This can bring a lot of extra finance into the business, especially if the shares are in high demand, as this will increase their value.
39
What is 'stock market floatation'?
+Selling shares on the stock market.
40
What are the advantages of PLCs?
+Much more capital can be raised by a PLC than by any other kind of business.
+That helps the company to expand and diversify.
+PLCs are incorporated and have limited liability, so if things go wrong, the owners only lose the amount of money they've invested.
41
What are the disadvantages of PLCs?
* It can be hard to get lots of shareholders to agree on how the business is run - Each shareholder has very little say [unless they own a lot of shares].
* Someone could buy enough shares to take over the company - if they can convince shareholders to sell.
* The accounts have to be made public - so everyone [including competitors] can see if a business is struggling.
* PLCs can have hundreds or even thousands of shareholders, so there are lots of people wanting a share of the profits.
42
How can a company's aims and objectives change?
A company's aims and objectives can change in different ways.
43
What are likely to change as a business evolves?
+As a business evolves, its aims and objectives are likely to change. Eg. it might want to...
* Change whether it aims to survive or grow
* Change the size of its workforce
* Enter or exit new markets
* Change the size of its product range
44
Why would a business change whether it aims to survive or grow?
+A new, start-up business's aims are likely to be focused on survival.
+However, once it is stable, aims might be centred around growth and maximising profits for reinvestment.
+But if the economy takes a downturn, the business might start struggling, and its aims could once more become focused on survival.
45
Why would a business change the size of its workforce?
+Eg. if a business is expanding, it might aim to recruit more staff.
+If a business has recently taken over another firm, it might aim to reduce the size of its workforce so it doesn't have multiple people carrying out the same role.
46
Why would a businesss enter or exit new markets?
+A business could aim to enter a new market, eg. by targeting a different group of people in the same place, or by starting to sell products in a new location.
+This could be because the business is growing, but may also be because their existing markets are shrinking and they need to find new places to sell their items.
+If a product isn't selling well in a particular market, the business's aims are likely to change so that they exit that market.
47
Why would a business change the size of its product range?
+Eg. if a business has a product that's selling really well, it might aim to bring out more products in the same range with different features.
+If it has products in a range that don't sell well, it might aim to decrease the product range and concentrate on promoting and growing its best best-selling products.
48
What may change for a business for external or internal reasons?
+Aims and objectives may change for external or internal reasons.
49
What do firms need to change their aims and objectives to keep up with?
+Firms also need to change their aims and objectives to keep up with the dynamic [ever changing] business environment]. External reasons include:
* New legislation
* Changes in market conditions
* Changes in technology
50
How can new legislation affect a company's aims and objectives?
+Companies may nee to adjust their aims and objectives when new laws are introduced.
+Eg. in 2016, a new living wage was introduced.
+This affected many companies' profit aims and objectives, as they had to pay higher wages.
51
How can changes in market conditions affect a company's aims and objectives?
+If a market grows, a company may alter its aims to focus on growing sales.
+However, if a market shrinks, a company might be more focused on survival or targeting new markets.
+If a market gets more competitive, a company might focus on maintaining its market share or maximising sales, rather than maximising profits or growing its market share.
52
How can changes in technology affect a company's aims and objectives?
+Companies need to keep up to date with new technology, especially if their competitors are using it.
+They may need to alter their aims and objectives so they spend more money on getting new equipment and training staff rather than investing in growth.
53
What can factors within the company also affect?
+Factors within the company can also affect its aims and objectives. Internal reasons include:
* Performance
* Internal changes
54
How can performance affect a company's aims and objectives?
+If a company performs better or worse than expected, aims and objectives may be changed.
+For example, if it sells more than expected one month, future sales objectives might be increased to match this.
55
How can internal changes affect a company's aims and objectives?
+Changes within the company can affect what its aims and objectives are.
+For example, if the management changes, then the new managers might have different priorities for the business, which will cause its aims and objectives to be changed.
56
What does better technology make it easier for?
+Better technology makes it easier to communicate and travel round the world.
+Which causes globalisation...
57
What does globalisation result in?
Globalisation means the world is more interconnected
58
What is globalisation?
+Globalisation is the process by which businesses and countries around the world become more connected.
+It means that it has become easier and more common for businesses to import products [buy them from abroad], and export products [sell products to other countries].
59
What impacts can the effects of globalisation have on businesses?
+The effects of globalisation can have many different impacts on businesses. Eg. the effects can be on:
* Imports
* Exports
* Business location
* Multinationals
60
What effect can globalisation have on imports?
+Firms have a larger market to buy from, so they may be able to buy supplies more cheaply, which reduces costs and can increase profits.
+However, more imports means there's more competition in a country.
+Firms may be forced to reduce their price to stay competitive.
61
What effect can globalisation have on exports?
+Being able to export goods easily means firms have a larger market to sell to.
+This can lead to increased sales and higher profits.
62
What effect can globalisation have on business location?
+Globalisation has made it easier for businesses to locate parts of their business abroad [eg. to set up stores, factories or offices overseas].
+This may allow them to reduce their costs so they can make more profit, [eg. if they start producing goods closer to where they get their raw materials from, their transport costs will fall].
+Some firms may also set up in countries where labour is cheaper, which helps to keep their costs down.
63
What effect can globalisation have on multinationals?
+Single businesses operating in more than one country are known as multinationals.
+When a big, multinational business enters a new country, firms already in that country may need to change the way they operate in order to compete successfully.
64
What do firms face barriers to?
Firms face barriers to international trade
65
What can't firms just do?
+Firms can't just buy and sell products across the world so easily.
+Governments have set up tarrifs and trade blocs as a way of trying to control international trade.
66
What are tarrifs?
+These are taxes on goods that are being imported or exported.
+They make products imported into a country more expensive than those that are produced domestically [in the home country].
+This helps domestic fims stay competitive.
67
What are trade blocs?
+These are groups of countries that have few or no trade barriers between them, [eg. they can trade with each other without having to pay tarrifs.
+Firms from countries outside the trade bloc will find it hard to compete with those inside, as their prices will be affected by having to pay tariffs.
68
What do firms need to be able to do?
Firms need to be able to compete internationally
69
What does having a global market mean?
+Having a global market means there can be lots of competition.
+So businesses need to be able to stand out from the competition.
70
What are the ways large firms can stand out from their competition?
* Use e-commerce
* Change their marketing mix
71
How can firms use e-commerce to stand out from their competition?
+Firms can use e-commerce to sell products via the internet.
+This means they can compete overseas without having to set up stores and infrastrucure in foreign countries, which keeps their costs down.
72
How can firms change their marketing mix to stand out from the competition?
+Firms may change their marketing mix in different countries [Eg. they can change prices to make sure they're competitive, or target products and promotion at the country's culture].
+Eg. **Macdonalds** is a multinational company - stores in different countries have slightly different menus to appeal to the customers in those countries.
* Eg. in India, none of their products contain beef, as many Indians are Hindu, so don't eat beef.
* In China, they have a special, seasonal menu to fit in with Chinese New Year.
73
How can a business make sure its being fair and honest?
+There are lots of things a business can do to make sure its being fair and honest.
+Many stakeholders are concerned about how businesses behave towards others, and whether they act in an ethical way.
74
What have ethical issues become?
+Ethical issues have become important for businesses
75
What are ethics?
+Ethics are the moral priciples of right and wrong.
+Many firms have their own ethical policies - this means they've developed ways of working that stakeholders think are fair and honest.
76
What raises many ethical issues?
+The ways that UK firms treat employees and suppliers in other countries raises many ethical issues.
77
What are some of the ethical issues that happens in foreign countries?
+In some countries, it's not illegal for people to work very long hours for very low pay.
+Some firms set up factories in these countries to reduce their labour costs - many people think this is unethical if it exploits workers from foreign countries.
78
How can businesses ensure workers are treated ethically?
+Businesses can write codes of conduct for any factories they have overseas.
+This helps to ensure that the workers are treated ethically.
+For example, they can put limits on the number of hours somebody can work each week so they don't get too tired.
+They could carry out checks to make sure the code is being followed.
79
How firms be ethical by choosing what they buy?
+Firms that buy raw materials from deveoping countries can choose to buy from Fair Trade sources.
+This means people in developing countries who produce the goods [eg. cocoa farmers] are paid a fair price so they can earn decent wages.
80
How do firms need to treat their UK employees?
+Businesses need to treat their employees in the UK ethically too.
+Eg. businesses should reward staff fairly, keep personal details about staff private and provide a comfortable working environment.
81
What isn't the only ethical issue for a business?
+Treating people well isn't the only ethical issue for a business.
+For example, when promoting products, firms have to follow codes of practice - they can't be dishonest or insult other brands in adverts [although competing products can now be compared in a fair way].
+Some products can't be advertised at all - eg. cigarette adverts are banned on health grounds.
82
What are firms also under pressure to carry out?
+Firms are also under pressure to carry out product development in an ethical way.
+This means using non-toxic materials, paying close attention to safety, and not using animal testing.
83
What can acting ethically have?
Acting ethically can have benefits and drawbacks
84
What can there be a trade-off between?
+There can be a trade off between behaving ethically and making the most profit for a firm.
85
What are the downsides of ethical policies?
+Ethical policies can be costly - eg. by treating workers fairly and making sure they are all paid a fair wage, a business is likely to have higher labour costs than if they didn't work ethically.
+Also if a firm is committed to using ethically sourced materials [eg. fair trade products] they may find it more difficult to find suppliers and have to pay a higher price for their materials.
+These increased costs mean that a firm doesn't make as much profit per item - It could put its prices up so that it makes more profit per item, but higher prices may lead to lower sales [so the business still ends up with less profit].
86
What are many firms still keen to do?
However, despite potentially making less profit, many firms are still keen to work ethically.
87
How might firms emphasise to customers they have strong ethical policies?
+Firms might change their marketing to emphasise the fact that they have strong ethical policies.
+For example, the Co-op advertises all its chocolate as from Fair Trade sources.
+By advertising its ethical policies, a business might gain customers and increase its profits - there are plenty of people who think that ethical practises are more important than price.
88
What positive effect can acting ethically have?
+Acting ethically can have a positive effect on other stakeholders as well.
+For example, some shareholders will be more likely to invest in a firm if it has shown that it behaves ethically.
+Treating staff ethically can mean workers are more motivated, which should make the firm more productive.
89
What can businesses reduce?
Businesses can reduce the impact of the environment
90
What can all businesses have an impact on?
+All businesses can have an impact on the environment.
+For example, by producing waste that ends up in landfills.
+Factories, cars and lorries can also cause air, noise and water pollution.
91
What are people worried about the combined impact of?
+People are worried that the combined impact of global businesses is damaging the Earth at the moment.
+For example, many firms use resources that are non-renewable [eg. coal and oil] - if these resources run out there's no way we can replace them.
+Also, many business activities release carbon dioxide and other gases into the atmosphere - these are thought to be contributing to global warming.
92
What are many businesses now aiming to be?
+Many businesses are now aiming to be more sustainible - this means working in ways that won't damage the Earth for future generations.
93
What are some of the ways businesses can be sustainible?
* Use less packaging and recycle more so that less waste goes to landfills.
* Dispose of hazardous waste carefully so that it doesn't pollute land or water.
* Use more efficient machinery that is less polluting to the air, or quieter machinery that causes less noise pollution.
* Use more renewable energy resources [eg. wind or solar power, and electrical goods that are more energy efficient.
94
What are there pros and cons to?
There are pros and cons to being environmentally friendly.
95
What happens as people are becoming more aware of environmental issues?
+As people become more aware of environmental issues, consumers are changing their buying decisions - people are now buying more "environmentally friendly" products.
96
What can taking environmental issues seriously give firms?
+Taking environmental issues seriously can give firms a competitive advantage.
+A "green image" can attract new customers and increase sales.
97
What are the issues of being environmentally friendly for a business?
+However, there can be a trade off for a business between being sustainible and making profit.
+Eg. buying new equipment and developing new processes in order to be sustainible can be expensive.
+Firms have to way up the benefits against the negative effect it could have on their profits.
98
What might a business change due to pressure groups?
A business might change its policies due to pressure groups.
99
What are pressure groups?
+Pressure groups are organisations that try to influence decisions made by the government or by businesses.
100
What happens if a pressure group runs a campaign against a certain firm?
+If a pressure group runs a campaign against a certain firm or industry [eg. by highlighting areas where it could be more environmentally friendly or ethical], customers might start to view the firm or industry in a bad light.
+This means the firm could lose custom if people stop buying from them.
101
How can businesses improve their image in the public eye?
+To improve their image in the public eye, businesses can change their marketing mix.
+For example, a business might have to change its products in response to activity from pressure groups.
+Eg. by making sure the materials are more ethically sourced, or have less of an impact on the environment.
+It might also run promotional campaigns to repair the negative publicity the pressure group has caused.
102
Give an example of how supermarkets have been affected by pressure groups.
* Supermarkets have been under pressure from groups such as WRAP and Friends of the Earth to reduce the amount of food that they waste.
* As customers have become more environmentally conscious, this pressure has increased.
* Many supermarkets have now changed their policies to reduce food waste - eg. by changing processes with suppliers so food is fresher when it reaches the store - so its less likely to go off.
* Supermarkets are also changing the products they sell - eg. some sell vegetables that are slightly strange looking for a cheaper price, so farmers don't have to throw them away.
