3.1 Business growth Flashcards
3.1.1 A)
Why do firms stay small
By choice or by force
3.1.1 A)
Why do firms choose to stay small
They have local monopoly ( may not be able to replicate on large scale)
- To avoid diseconomies of scale
-to keep objective clear & consistent
-Owner wants good work life balance
-TO stay out of sight of larger firms
3.1.1 A)
Why are firms forced to stay small
-Market may have low barrier to entry
-Firm may lack finance to expand (bank sees them as a risk)
-Reached limited for demand
-Owner may lack skill to growth firm further
3.1.1 A)
Why do firms grow
-To meet objectives (^ market share, ^ stakeholder value)
-Response to external forces, tech advancements, political/ legal change. change in consumer demand
-Response to internal foprces. Employee pressure, owner power
-gain competive advantage
3.1.1 B)
What is divorce of ownership
Occurs bcos those who own firm often not the same controlling busniess day-to-day
Busniess owners wish to maximize profits
Managers wants to maximize personal benifit leads to conflit of intrest between the too
3.1.1 B)
Principle agent problem
- firm owners not part of day to day running of busniess
- managers make day-to-day decisons
-stakeholder have say in busniess
Busniess owners wish to maximize profits
Managers wants to maximize personal benifit leads to conflit of intrest between the too
principle agent problem where one group make decisons (agent) of behald of another group (principcal)
leads to profit stisice instead of profit maximization. this could be fixed by giving manager shares of linking bonous to profit
3.1.1 B)
What is private sector
refers to economies owned and run by indivdiual or group of individuals
3.1.1 B)
What is public sector
owned / controlled by local or centeral govt provided servies profit is not the aim
3.1.1 C)
profit vs non-profit org
-private sector run to make profit and max financical benifit for their stakeholdrr
-some private non profit. profit made support their aim of mazimaize social welfare
3.1.2)
How do busniesses grow
Organically or through intergration
3.1.2 A)
How does organic growth occur
through investing in more capital by borrowing money or raising funds, increasing output
3.1.2 B)
Adv of organic growth
its expensive and time consuming to intergrate
firm keeps control of busniess
3.1.2 B)
DAdv of organic growth
Another firms may have a market or asset that cant be gained through organic growth
organic growth can be slow
difficult for new firms to get new ideas
3.1.2 A)
What is intergration
Growth through amalgamation, mergers and takovers.
amalgamation, mergers when compaines combine / come under common ownership.
3.1.2 A)
What is vertical intergration
Is the intergration of a firm of the same industry but different parts of the production process
3.1.2 A)
Forwards vs backwards vertical intergration
going towards the suppliers is backwards
going towards the consumer is forward
3.1.2 B)
Adv of vertical intergration
increased potential for profit
less risk about not enough demand or ss for ur product
backwards - they have more control of quality and delivery
forward - secures retail outlets and reduces choice for competetion
3.1.2 B)
DAdv of vertical intergration
Lack experience in that field
3.1.2 A)
What is horizontal intergration
Intergration from firms in the same industry and the same point in the production proceess
3.1.2 B)
Adv of horizontal intergration
v competetion. ^ market share, ^ influence
specialise reducing dupliates in busniess
growth
3.1.2 B)
DAdv of horiztonal intergration
^ risk if that market fails
3.1.2 A)
What is conglomerate intergration
intergration for firms in diff industries with no clear connections
3.1.2 B)
Adv of conglomerate intergration
useful is no room to grow in current market
reduce risk of industry failure
easier to expand as rescourses are there
3.1.2 B)
DAdv of conglomerate intergration
No expertices can damage a busniess
3.1.2 C)
Constrains on busniess growth
Size of market - difficult to grow more
access to finance - unwilling to be lent £ cant afford growth
owner objectives - some dont want to grow due to being happy in current pos , and not wanting more risk
regulations - prevents growth through laws (monopoly)
3.1.3)
What is a demerger
Is a busniess strat in which a single busniess is broken down into 2+ components
3.1.3 A)
Reasons for demergers
Lack of synergies
Value of company/share price
Focussed companie
3.1.3 A)
How does Lack of synergies lead to demergers
Diff parts of company have no real impact on eachother and fail to make eachother more efficent. Lack of synergies means managers spilit between such diff areas could lead to diseconomies of scales.
3.1.3 A)
How does Value of company/share price lead to demerger
part of company worth more than combineded. some areas have more potential to grow
3.1.3 A)
How does focused companies lead to demerger
Managers/company focused on individual markets they become more eff. focusing on one area managers can improve skill and knowledge
3.1.3 B)
How does demegers effect workers
workers could gain or lose. could lead to better jobs are new managers needed. however could lead to layoffs as areas try become more eff.
3.1.3 B)
How does demegers effect busniesses
more efficent however loss of economies of scale
3.1.3 B)
How does demegers effect consumers
cheaper/better products or more expensive reduced qual or range of goods
