3.1 business growth Flashcards
why might one firm want to stay small
niche market, owner wants to keep control & keep company small
describe the principle agent problem
a conflict in priorities between a person or group and the representative authorized to act on their behalf
private limited companies
shareholders can only lose the money they invested in the business. take overs cannot happen as share holders will likely only trade with other share holders, likely family members
public limited companies
being publicly quotes, shares can be bought by the public as they float on the stock exchange. open to hostile take overs if anyone ownes more than 51% of shares
sole trader
wherein an individual runs their own business. any profit of the company is income & thus succesbitle to income tax. unlimited liability
partnership
wherein 2 or more people share cost, risks & responsibilities & share profits made by the company
for profit
A for-profit can raise money from private investors, for which it must give equity or dividends to shareholders; ultimately, a return on investment is expected.
not for profit
A nonprofit, on the other hand, can seek donations from individuals, foundations and corporations.
organic growth
internal change, such as opening new branches or producing new products.
+ less risky
+ less loss of control or brand dilution
- time consuming
- limited potential for growth
vertical integration
wherein 2 firms at difference stages in the process integrate
forward: ahead of them in the process
backward: behind them in the process eg. raw materials
+ benefit from expertise
+ gain foothold in market
- clash of culture
- less focus
organic growth
internal change, such as opening new branches or producing new products.
+ less risky
+ less loss of control or brand dilution
- time consuming
- limited potential for growth
vertical integration
wherein 2 firms at difference stages in the process integrate
forward: ahead of them in the process
backward: behind them in the process eg. raw materials
+ benefit from expertise
+ gain foothold in market
- clash of culture
- less focus
horizontal integration
wherein 2 firms at the same stage in the process integrate
\+ monopoloy power \+ remove competition from the market \+ similar goals & expertise - finance required - less tight control
conglomerate integration
when two unrelated firms integration eg. car manufacturer with a bookstore
integration
bringing together 2 or more firms
merger
when 2 or more firms agree to become integrated to form one firm under join ownership. A + B = AB
takeover
when one firm gains control over another & becomes the owner. aka owned 51% of shares. A + B = A
constraints on the business market that prevent u from being able to soar
Size of the market
Owner objectives
Access to finances
Regulation
moral hazard
managers are more involved, owners have limited insight which can lead to a moral hazard
demergers
either when theres a merge and then a demerger; or the seperation of a company into two seperate firms
reasons for demergers
economics of scale; realise capital from the demerger; specialise in different field; different characteristics might hamper profit maximisation
impact of demergers on the business
greater focus on core competancies; diseconomies of scale can be reduced; selling off parts of the business can provide a cheap source of finance aka asset strip
create competition in an industry as one firm becomes two
impact of demergers on the business
+ greater focus on core competancies
+ diseconomies of scale can be reduced
+ selling off parts of the business can provide a cheap source of finance aka asset strip
- create competition in an industry as one firm becomes two
impact of demergers on the workers
- disposal of unwanted elements could lead to job insecurity
