3.2

Question 1

What is liquidity?

Answer 1

how quickly a business is able to get cash

Question 2

What are the objectives of economies of scale?

Answer 2

-having more funds to buy stock
-having more power over suppliers
-having a better reputation

Question 3

What is purchasing in terms of economies of scale

Answer 3

discounts and lower prices for raw materials as they need to purchase more

Question 4

What is technical economies of scale?

Answer 4

businesses with large scale production can use more advanced machinery and invest in new technology

Question 5

What is specialization (managerial)

Answer 5

businesses wish to afford specialized managers and workers

Question 5

What is financial economies of scale

Answer 5

larger firms find it easier to find lenders and raise money

Question 6

What is marketing economies of scale?

Answer 6

as a business gets larger it is able to spread the cost of marketing over a wider range of products and sales

Question 7

What is risk economies of scale?

Answer 7

bigger businesses can spread the risk by investing in more products and markets

Question 8

What is diseconomies of scale?

Answer 8

as the business grows they may expand the scale of production beyond the maximum efficient scale, at this point the average costs per unit starts to rise as production increases

Question 9

State the ways a business can grow

Answer 9

-expanding product portfolio
-opening new locations
-recruiting new staff
-expansion into new markets
-increasing market share

Question 10

define organic growth

Answer 10

the growth of a business achieved by increasing output and increasing sales internally

Question 11

state 4 methods of organic growth

Answer 11

-new product launch
-opening new stores
-expanding into foreign markets
-expansion of workforce

Question 12

what are the advantages of organic growth

Answer 12

-avoids risks and pitfalls of merging with another business
-cheaper than merging
-retains company culture
-easier to plan than a takeover

Question 13

what are the disadvantages of organic growth

Answer 13

-high risk strategy as opening new stores is capital intensive
-long period between investment and return
-growth limited & dependent on reliability of sales forecast
-new markets & countries can be risky as they are unknown

Question 14

How can growth reduce the power of suppliers

Answer 14

limit power of suppliers by looking for new suppliers, economies of scale, have barging power

Question 15

How can growth reduce the power of customers

Answer 15

make it too expensive for customers to switch, become more price competitive, invest in R&D to provide best products in the market

Question 16

How can a business increase market share & brand recognition

Answer 16

increase advertisement
access new markets
better reputation

Question 17

How can a business increase profitability

Answer 17

decrease costs

Question 18

What issues are there with lack of motivation

Answer 18

leads to powerless and alienation
increases absence and lateness
reduced productivity
lower output per worker
increased unit cost

Question 19

What issues are there with lack of coordination

Answer 19

all resources must be controlled so operations runs smoothly
workers may need monitoring which increases costs

Question 20

What impacts are there with internal communication issues

Answer 20

takes a long time for messages to get through the layers of management
less effective communication = more mistakes, higher wastage, higher unit cost

Question 21

What is overtrading

Answer 21

when a business accepts more orders than it can cope with

Question 22

what are the risks with overtrading

Answer 22

can result in cash flow problems
outsourcing adds costs

Question 23

define inorganic growth

Answer 23

a growth in the operations of a business that arise from mergers and takeovers which increase a businesses activity

Question 24

what are the advantages of inorganic growth

Answer 24

access to new markets
expand customer base
cut competition
consolidate & grow quickly
gain new technology and staff

Question 25

define merger

Answer 25

when 2 businesses join together to create a third company

Question 26

define takeover (friendly vs hostile)

Answer 26

friendly- a business struggling with cash flow invite a takeover from a stronger business
hostile- the board of directors will try and resist the takeover but if another business gets over 50% of shares they can takeover

Question 27

what are the tactical reasons for takeovers

Answer 27

ensure an increase in market share
access to technology
access to staff and knowledge

Question 28

what are the strategic reasons for takeovers

Answer 28

access to new markets
improved distribution networks
improved brands

Question 29

advantages of mergers

Answer 29

combined company’s worth more than the sum of its parts
economies of scale
increase revenue and market share
power and ability to set prices
cross-selling
diversification
acquiring unique capabilities and resources
international expansion

Question 30

what is vertical intergration

Answer 30

purchase of companies in a different level of production

Question 31

what is horizontal intergration

Answer 31

purchase of competing companies in the same industry

Question 32

what are the risks of mergers & takeovers

Answer 32

cost of change into a new business
original purchase cost
redundancies of staff

Question 33

what are the problems with acquisitions/takeovers

Answer 33

clash of cultures
communication problems
possible move away from core competencies of original business may cause issue of control
unreliable partner

Question 34

what is capital intensive production

Answer 34

machine intensive production

Question 35

what is labor intensive production

Answer 35

worker focused production

Question 36

define a small business

Answer 36

any business with fewer than 250 employees

Question 37

state the 5 benefits of staying small

Answer 37

product differentiation
USP
flexibility
customer service
ecommerce