3.1.2 size of businesses

Question 1

SMEs (small- and medium-size enterprises)

Answer 1

businesses that maintain revenues, assets or a number of employees below a certain threshold. … They outnumber large firms considerably, employ vast numbers of people and are generally entrepreneurial in nature, helping to shape innovation.

Question 2

Large Corporations

Answer 2

The term large corporation means any corporation (or a predecessor corporation) that had taxable income of at least $1,000,000 for any taxable year during the testing period.

Question 3

Organic Growth

Answer 3

the growth a company achieves by increasing output and enhancing sales internally. This does not include profits or growth attributable to mergers and acquisitions but rather an increase in sales and expansion through the company’s own resources.

Question 4

Merger

Answer 4

A merger is the voluntary fusion of two companies on broadly equal terms into one new legal entity.

Question 5

Takeover

Answer 5

A takeover occurs when one company makes a successful bid to assume control of or acquire another. … Takeovers are also commonly done through the merger and acquisition process. In a takeover, the company making the bid is the acquirer and the company it wishes to take control of is called the target.

Question 6

Forward Vertical Integration

Answer 6

Forward integration is a business strategy that involves a form of downstream vertical integration whereby the company owns and controls business activities that are ahead in the value chain of its industry, this might include among others direct distribution or supply of the company’s products.

Question 7

Backward Vertical Integration

Answer 7

backward integration occurs when a company initiates a vertical integration by moving backward in its industry’s supply chain. An example of backward integration might be a bakery that purchases a wheat processor or a wheat farm.

Question 8

Horizontal Integration

Answer 8

Horizontal integration is the process of a company increasing production of goods or services at the same part of the supply chain. A company may do this via internal expansion, acquisition or merger. The process can lead to monopoly if a company captures the vast majority of the market for that product or service.

Question 9

Conglomerte Integration

Answer 9

A conglomerate merger is “any merger that is not horizontal or vertical; in general, it is the combination of firms in different industries or firms operating in different geographic areas”. Conglomerate mergers can serve various purposes, including extending corporate territories and extending a product range.

Question 10

Disadvantages of a merger?

Answer 10

Raises prices of products or services. A merger results in reduced competition and a larger market share. …
Creates gaps in communication. The companies that have agreed to merge may have different cultures. …
Creates unemployment. …
Prevents economies of scale.

Question 11

Disadvantages of a takeover?

Answer 11

High cost involved - with the takeover price often proving too high.
Problems of valuation (see the price too high, above)
Upset customers and suppliers, usually as a result of the disruption involved.
Problems of integration (change management), including resistance from employees.

Question 12

Advantages of a merger?

Answer 12

Gain market share, reduce costs of operations, expand to new territories, unite common products, grow revenues, and increase profits—all of which should benefit the firms’ shareholders.

Question 13

Advatages of a takeover?

Answer 13

Increase market share.
Acquire new skills.
Access economies of scale.
Secure better distribution.
Acquire intangible assets (brands, patents, trade marks)
Spread risks by diversifying.

Question 14

How does the size of a market affect business growth?

Answer 14

If the supply curve slopes upward, an increase in market size leads to an increase in the market price. This is typically the case when we look at short-run supply curves for most goods.
If the supply curve slopes downward, an increase in market size leads to a decrease in the market price. This is typically the case when we look at long-run supply curves for goods in a decreasing cost industry.

Question 15

Importance of access to finance on business growth?

Answer 15

Access to finance refers to public loans or government subsidised loans for firms. Such loans are intended to support and stimulate economic growth by providing financing to firms where the market is failing to do so. Access to finance policies are intended to impact on firm growth, productivity and employment.

Question 16

Importance of owners objectives on business growth?

Answer 16

Objectives are the mileposts to guide you and your employees on the way to building the business. Objectives are important because they convert visions into clear-cut measurable targets. Employees are very clear as to what they are expected to achieve and when.

Question 17

Imprtance of government regualtion?

Answer 17

Regulations empower us as consumers to make informed decisions about our health and safety. They give us peace of mind as employees, that our employer’s practices will be fair and that public spaces will be clean and meet the necessary standards.

Question 18

Importance of bureaucracy

Answer 18

In government or large organizations, bureaucracy is indispensable in administering rules and regulations. A bureaucratic structure is designed to administer large-scale and systematic coordination between many people working at different levels to achieve a common goal.

Question 19

Reasons why some firms tend to remain small while others grow?

Answer 19

Fear based pricing:– You may have started your business thinking you should keep charges low so people will buy. … Lack of change is another reason why businesses stay small. 5. Working yourself to death:– The final reason why businesses stay small is that entrepreneurs often think they have to do it all

Question 20

Impact of growth of firms on businesses.

Answer 20

The effect of economic growth on business is incredibly positive: your business is likely to earn more customers, increase profitability, and experience great opportunities for further growth and expansion. However might need to burrow money for expansion costs.

Question 21

Impact of growth of firms on workers.

Answer 21

Greater Job Security

Conversely, rapid growth creates an atmosphere of prosperity and job security. Employees know that if they do a good job, they will retain their job. Having employees worried about losing their jobs can be damaging to both morale and productivity.

Question 22

Impact of growth of firms on consumers.

Answer 22

Consume more goods and services and enjoy better standards of living.

Question 23

What is a demerger?

Answer 23

Allows a large company, such as a conglomerate, to split off its various brands or business units

Question 24

reasons for demergers?

Answer 24

To invite or prevent an acquisition, to raise capital by selling off components that are no longer part of the business’s core product line, or to create separate legal entities to handle

Question 25

Impact of demergers on businesses?

Answer 25

A successful demerger could mean increased efficiency, lower costs and more competitive products, leading to higher sales and profits. A badly judged demerger might have the opposite effects.

Question 26

Impact of demergers on workers?

Answer 26

Workers might become confused, and their roles might be shifted between the demerged firm and the parent firm. There could also be job cuts. The removal of diseconomies of scale could lead to lower prices for consumers. There could be a net welfare gain if the demerger results in a higher level of efficiency.

Question 27

Impact of demergerss on consumers?

Answer 27

The removal of diseconomies of scale could lead to lower prices for consumers. There could be a net welfare gain if the demerger results in a higher level of efficiency. If two firms in the same industry and the same stage of production demerge, such as two airlines, this would increase choice for consumers.