3.1 Business Growth Flashcards
Why do some firms decide to remain small?
Some remain small because of constraints on growth: the size
of the market, access to finance, owner objectives and regulation. Not all firms want to grow.
Why do some firms grow?
- By growing, a firm will be able to experience economies of scale which helps them to decrease their costs of production.
- A larger firm will hold a greater share of their market. This will give them the ability to influence prices and restrict the ability of other firms to enter the market, helping them to make profits in the long run.
- A larger firm will have more security as they will be able to build up assets and cash which can be used in financial difficulties
What is the Principal Agent Problem?
The principal–agent problem refers to the conflict in interests and priorities that arises when one person or entity (the agent) takes actions on behalf of another person or entity (the principal).
What is the Public Sector?
The public sector refers to that part of the economy which is owned or controlled by local or central government.
What is the Private Sector?
The private sector refers to that part of the economy that is owned and run by individuals or groups of individuals, including sole traders and PLCs.
What is a Not-for-Profit Organisation?
Some private sector organisations are not-for-profit. Any profit they do make is used to support their aim of maximising social welfare and helping individuals and groups. These organisations include charities and smaller organisations who aren’t large enough to be classified as charities.
What is Organic Growth?
Organic growth is the process by which a company expands on its own capacity, increasing output and enhancing sales internally.
What is Vertical Integration?
Vertical integration is the integration of firms in the same industry but at different stages in the production process.
What is Forward Vertical Integration?
Forward integration is when the firm is moving towards
the eventual consumer of a good (up the supply chain).
What is Backwards Vertical Integration?
If the merger takes the firm back towards the supplier of a
good, it is backwards integration (down the supply chain).
What is Horizontal Integration?
This is where firms in the same industry at the same stage of production integrate.
What is Conglomerate Integration?
This is where firms in different industries with no obvious connections integrate.
What are some constraints of Business Growth?
- Size of the market
- Access to finance
- Owner objectives
- Regulation
What are some reasons for Demergers?
- Lack of synergies
- Value of the company/share price
- Focussed companies
- Avoid attention from competition authorities
