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Economics > 3.1 business growth > Flashcards

3.1 business growth Flashcards

1
Q

why do some firms remain small?

A

-size of market is very small
-limited access to finance
-owner objective to retain control of the business
-lack of economies of scales
-individual, personalised services
-need for a dynamic, responsive, service-led firm

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2
Q

why would a size of a market cause the firm to remain small?

A

if a specialist market and demand is low then firm is likely to remain small

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3
Q

why would limited access to finance cause the firm to remain small?

A

small firms might be regarded as high risk to banks, making them unwilling to lend

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4
Q

why would owner objective to retain control of the business cause the firm to remain small?

A

owners may want to retain complete control of their business, unwilling to expand

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5
Q

why would lack of economies of scales cause the firm to remain small?

A

no incentive for a firm to grow if there are no potential cost savings

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6
Q

why would individual, personalised services cause a firm to remain small?

A

often small because they offer a personal service and customers may wish to deal with a particular service

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7
Q

why would a dynamic, reponive, service-led firm cause a firm to remain small?

A

firms involved in design are often small and quick to respond to the needs of larger firms that buy in their services

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8
Q

why do some firms grow?

A

-benefits from economies of scale
-increase market share
-reduce risk
-meet managerial objectives

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9
Q

why would benefits of economies of scales cause a firm to grow?

A

larger firms often have lower costs per unit of output in the long run

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10
Q

why would increase market share cause a firm to grow?

A

larger firm has more market power than smaller firms, can control prices and retain consumer loyalty, threat of competitors is reduced

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11
Q

why would firms grow to reduce risk?

A

larger firms might diversify and produce a range of products, benefiting from economies of scope. firms specialising in one product face the risk that if demand falls, might be forced out of business

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12
Q

why would firms grow to meet managerial objectives?

A

firms may wish to grow because the pay and bonuses of managers are related to sales revenue, manager might seek the higher status of being part of a large organisation

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13
Q

what are public sector organisation?

A

owned by the government, provide goods or services for benefit of the public

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14
Q

what are private sector organisations?

A

owned by private individuals and companies, profit

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15
Q

what are for-profit organisation?

A

organisations which are in pursuit of profits

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16
Q

what are non-profit organisations?

A

organisations which operate to fulfil other social objectives

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17
Q

what is the principal agent problem?

A

shareholders own most large businesses and they appoint directors and managers to control businesses on their behalf, shareholders want to maximise profits, managers might have different motives. means that the aims of the principles and agents diverge and conflict with each other

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18
Q

what are the potential problems of the divorce of ownership and control?

A

cannot always ensure company is ran how wanted, two different objectives by principal and agent, not have same direct incentive

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19
Q

how can businesses overcome the problem of divorce of ownership and control?

A

owner can attempt to provide incentives, managers are encouraged by bonuses or share-options

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20
Q

what is internal growth?

A

organic growth, internal growth of a business, not growth from businesses acquired

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21
Q

how can internal growth be achieved?

A

buying new capital, taking on more workers or increasing the amount of hours people work

22
Q

what are advantages of internal growth?

A

-management have sound knowledge of business
-can respond quickly to changes in the market quickly
-no need for restructuring
-less risk than with growth through a merger

23
Q

what are disadvantages of internal growth?

A

-growth may be slower than through mergers or takeovers
-decrease competitiveness of business
-business might not be able to take on new ideas or people
-might get too specialised in areas that are becoming out of date

24
Q

what is external growth?

A

firms can grow by buying out other firms, by agreement (mergers) or taking them over (acquisitions), getting new customers

25
Q

what are risks of external growth?

A

financial risks, might not be able to take on the debt to buy another firm, risk of investigation by competition and markets authority

26
Q

what is horizontal integration?

A

firms merge at the same stage of production process, might not make exactly the same process

27
Q

what are advantages of horizontal intergration?

A

-gain economies of scale
-increase market share
-eliminate a competitor so enabling the firm to gain a degree of monopoly power
-reduces risk of being brought out by a rival
-increased revenue for business, larger customer base

28
Q

what are disadvantages of horizontal integration?

A

-risk focuses on narrow range of g/s
-diseconomies of scale may occur
-share price of firm being brought may rise, buyout expensive
-some workers may lose jobs if duplicated
-workers might have to move
-some assets might be sold off

29
Q

what is vertical integration?

A

firms merge at different stages of production process, backward integration or forward vertical integration

30
Q

what is backward vertical integration?

A

frim merges with supplier

31
Q

what are advantages of backward vertical integration?

A

-control over raw materials means supply and quality are guaranteed
-other firms might be prevented from getting supplies
-mark-up that a supplier makes might become profit for buying firm

32
Q

what are disadvantages of backward vertical integration?

A

-firm might not need to buy all the supplies
-firm might not have specialist knowledge of production
-firm might find it hard to adapt to changes is consumer demand

33
Q

what is conglomerate integration?

A

occurs when firm buys another firm in a completely unrelated business

34
Q

what are advantages of conglomerate integration?

A

-spreads risk
-different products do well at different parts of business cycle
-brands gain more recognition

35
Q

what are disadvantages of conglomerate inegration?

A

-might be a lack of expertise in new areas
-brands might become diluted
-differences in cultures may result in conflict and low productivity

36
Q

what are constraints on business growth?

A

government regulation, capacity constraints, market constraints, vision constraints, state of economy

37
Q

why does government regulation restrain business growth?

A

some firms unable to grow because governments might use regulations to ensure markets remain competitive, preventing development of monopolies

38
Q

why does capacity constraints restrain business growth?

A

firm might have insufficient machinery to expand, labour constraints could be a problem, difficulty in recruiting workers

39
Q

how does market constraints restrain business growth?

A

demand is limited or if individual tastes have to be satisfied, large-scale production would be inappropriate

40
Q

how does vision constraints restrain business growth?

A

owners attitude, e.g lack of ambition, might be a key reason why the firm does not expand

41
Q

how does the state of economy restrain business growth?

A

if economy in recession, owners might think that demand is limited

42
Q

what are demergers?

A

involve separation of a large company into two or more smaller companies, could involve dissolution of an earlier merger

43
Q

what are reasons for demergers?

A

-focus on the core business
-increase profit
-raise finance
-avoid diseconomies of scales
-meet demand of regulators

44
Q

why is a focusing on a core business reason for demergers?

A

might enable higher profits to be made by developing that part to gain benefits of specialisation

45
Q

why is increasing profit a reason for demergers?

A

could be achieved if under-performing or loss-making parts of the business are sold

46
Q

why is raising finance
a reason for demergers?

A

would be possible by selling the shares in the new company, money raised can be used for investment

47
Q

why is avoiding diseconomies of scale a reason for demergers?

A

merged firms can be difficult to manage if they involve different core activities

48
Q

why is meeting demand of regulators a reason for demergers?

A

firm might be required to spin off part of its business by regulatory authority as a means of increasing competition

49
Q

what is the impact of demergers on businesses?

A

allow focus n the core business, raising funds from selling parts of the business, removing loss-making parts of the business

50
Q

what are the impacts of demergers on workers?

A

might be increase in job security, reduction in conflict between cultures and an increased focus on the business to enable it to be more profitable

51
Q

what are the impacts of demergers on consumers?

A

greater competition leads to lower prices, more focused businesses are able to better meet consumer needs

Economics (20 decks)

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