3.1 business growth

Question 1

reasons why some businesses choose to grow

Answer 1

-increase sales and profits
-increase market share
-gain economies of sale
-protect against competition
-reduce risk by diversification

Question 2

reasons why some businesses choose to stay small

Answer 2

-retain control
-concentrate on niche markets
-small can be selling point
-lack of motivation by owner
-avoid diseconomies of sale

Question 3

the principal agent problem

Answer 3

-separation of ownership and control
-firms are owned by shareholders who do not help in day to day running
-senior managers control day to day decision making
-differing aims as both want to maximise benefits to themselves

Question 4

public Vs private sector

Answer 4

-private sector is owned and run by individuals or a group of individuals
-public sector is owned or controlled by local government, aims to provide a service

Question 5

profit Vs non-profit organisations

Answer 5

-most businesses aim to make a profit and maximise financial benefits to shareholders
-non profits aim to maximise social welfare and help individuals or groups e.g. charities

Question 6

how businesses grow- organic growth

Answer 6

-growth by increasing output e.g. increased investment or more labour
advantages- keep control, integration is expensive and risky
disadvantages- slow, hard to get new ideas some markets would be unable to reach

Question 7

how businesses grow- forward and backward vertical integration

Answer 7

-integration is growth through merger or takeover
-vertical is firms in same industry at different stages of production
-forward is moving closer to consumer
advantages- inc profit, control quality of supplies and delivery
disadvantages- no expertise in the industry they are taking over.

Question 8

how businesses grow- horizontal integration

Answer 8

-when firms in same stages of production integrate
advantages- helps reduce competition, inc market share, able to specialise, already have expertise
disadvantages- increased risk if market fails

Question 9

how businesses grow- conglomerate integration

Answer 9

-firms in diff industries with no obvious connections integrate
advantages- good when no growth room in current market, reduces risk
disadvantages- no expertise can damage the business

Question 10

constraints on business growth- size of market

Answer 10

-not all businesses can mass produce as there are not enough consumers
-particularly in niche markets and markets for luxury items

Question 11

constraints on business growth- access to finance

Answer 11

-if they do not make enough profits they cannot use this to grow
-banks may be unwilling to lend money especially to small businesses that seem high risk

Question 12

constraints on business growth- owner objectives

Answer 12

-some may not want growth if they are happy with current profits and do not want the extra risks

Question 13

constraints on business growth- regulation

Answer 13

-gov regulation e.g. on carbon emissions

Question 14

what is a demerger?

Answer 14

• a single business broken down into 2 or more components to operate on their own or to be sold or dissolved

Question 15

reasons for demergers

Answer 15

1.lack of synergies- diff parts of company have no impact on each other and fail to make each other more efficient
2.value of company- value separately worth more than together
3.focussed companies- focus can make more efficient and successful

Question 16

impacts of demergers on different parties

Answer 16

1.workers- lose job due to efficiency or get promotion
2.businesses- more efficient and more innovation but loss of EoS
2.consumers- may gain from innovation better products and cheaper prices but loss of EoS may mean higher prices