3.1 Business Growth

Question 1

why might firns wish to grow?

Answer 1

• more sales and profit
• increase in market profit
• diversifying enjoying risk bearing economies
• internal economies of scale
• owners objectives (success)

Question 2

why may firms not want to expand?

Answer 2

• lack of finance
• regulations, to stop firms growing, ( stoping consumer exploitation)
• niche markets, can’t personalise
• internal diseconomies of scale
• profit satisficing

Question 3

overall reasons why firms may want to grow/ stay small

Answer 3

Question 4

what is the divorce of ownership and control?

Answer 4

when the managers/ directors of the form are differnrt form the owners of a firm (usually shareholders)

leads to th principle agent problem

Question 5

what is the principle agent problem?

Answer 5

• when the agent pursus differnt objctives to the principle
• eg: managers (agent) look to maximise sales for sale bonuses while shareholders (principles) look to maximise profit

Question 6

what are private sector firms?

Answer 6

firms owned by indidiviuals who wish to maximise profit or seek to raise awarness

Question 7

what are the different types of firms?

Answer 7

• private firms
• public firms

Question 9

what is organic and inorganic growth?

Answer 9

• organic growth: firm grows by investing money into itself to increase output
• inorganic growth: when firms grow by merging or acquiring with another firm

Question 10

what are the 4 types of inorganic growth?

Answer 10

• backward vertical integration
• forwards vertical integration
• horizontal integration
• conglomerate integration

Question 11

what is vertical integration?

Answer 11

when firms from different stages of the same production process join together

eg:

Question 12

what is backwards vertical integration?

Answer 12

a firm integrates with another firm away from the consumer (finished product) in the same production process

eg: ford manufacturing merging with tyre makers

Question 13

what is forwards vertical integration?

Answer 13

when a firm integrates with another firm who is closer to the consumer in the same production process

eg: ford manufacturing merging with showrooms

Question 14

what is horizontal integration?

Answer 14

when firms in the same stage of the production process merge together

eg: ford manufacturing and jaguar manufacturning

Question 15

what is conglomerate ?

Answer 15

when two firms in unrelated industries join together

eg: pepsi and quakers

Question 16

what are the pros of organic growth?

Answer 16

• keeping ownership and control (bank loans/ reinvesting profits)
• low risk (sucessful business model)

Question 17

what are the cons of organic growth?

Answer 17

• loosing ownerhsip (if selling shares)
• loosing control (if setting up many franchises)
• slower growth

Question 18

what are the pros of vertical integration?

Answer 18

• control of the supply chain, preventing competition
• reduced intermediary costs (transport costs/ markups)
• better access to consumers/ raw materials, more information, can improve quality/ develop more suitd products

Question 19

what is the cons of vertical integration?

Answer 19

• regualtion preventing control of the supply chain
• costs of diseconomies of scales
• cost of acquisition
• may lack expertise

Question 20

overall pros and cons of vertical integration

Answer 20

Question 21

pros of horizontal integration

Answer 21

• internal economies of scale (purchaisng, finanical, tcehnical, managerial, marketing)
• rationalisation: reorganising and cutting out duplicate costs (
• reduced competition (no more adverts and discounts)

link back to profit

Question 22

overall pros and cons of horizontal integration

Answer 22

Question 22

cons of horizontal integration

Answer 22

• internal diseconomies of scale (abc- managment styles can clash slowing down communication)
• job losses
• brand dillution

link back to profit

Question 23

what are the pros of conglomerate integration?

Answer 23

• internal economies of scale (risk bearing, reduced cost of failure)
• increased brand awarness, more sales for both
• knowledge transfers, increasing dyanimc efficency

Question 24

cons of conglomerate intergration?

Answer 24

• internal diseconomies of scale (abc, communicationdue to managment issues)
• brand dillution ( quakers and pepsi- quakers no longer seen as healthy)
• lack of exepertise

Question 25

overall pros and cons of conglomerate integration

Answer 25

Question 26

reasons for demergers

Answer 26

• reduced ineternal diseconomies of scale
• specilaise and increase productivity and quality, increased output, decreasd costs, decreased LRAC costs, increasing profits
• cultural differences, avoiding conflicts
• asset sales to raise capital, can reinvest to economy increasing dynamic efficency

Question 27

what are the pros and cons of demergers to workers

Answer 27

• pro: reduced cultural conflicts, reduced tension, increased productivity and job satisfaction
• con: lower job security: unsure of which division they will b under and if this particular division is sold to raise capital, may reduce their jobs entirley

Question 28

what are the pros and cosn of demergers to consumers?

Answer 28

• pros: speclisation/ reduced diseconomies of scale, more efficent gives lower prices and better quality
• cons/ eval: firms become smaller, reduces the economies of scale : increasing costs and prices for consumers