3.2 Flashcards

1
Q

What is business growth?

A

The point at which a business needs to expand and seeks options to generate more profits.

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2
Q

What are objectives of growth?

A

1) To achieve economies of scale (internal and external)
2) Increased market power over customers and suppliers
3) Increased market share and brand recognition
4) Increased profitability

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3
Q

What is achieving economies of scale?

A

> Where growth enables a business to benefit from EOS with a huge impact on the cost of production.
If production is less expensive because average costs have fallen then this can increase the profit margins of the business or they can choose to reduce prices to gain more market share.

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4
Q

What are benefits of achieving EOS?

A

> As a business grows in size it will be able to gain competitive advantages by having;
-More funds to buy stock, so being able to get better deals by buying in bulk.
-Having more power
-More funds to pay for specialist staff.
-Having a better reputation so banks are willing to lend.

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5
Q

What are EOS and average costs?

A

> EOS occur when unit costs or average costs fall as a result as in increase in the level of output of the business.
The more they make, the cheaper it gets per item.

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6
Q

What is the benefit of bulk buying/ purchasing economies?

A

> Need to order larger quantities of production inputs.
The order value increases, a business obtains more bargaining power with suppliers.
It may be able to obtain discounts and lower prices for the raw materials.

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7
Q

What are technical economies of scale?

A

> Businesses with large-scale production can use more advanced machinery.
May include using mass production techniques, which are a more efficient form of production.
Fixed costs of purchasing machinery spread over higher levels of output.

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8
Q

What are the benefits of managerial towards EOS?

A

> As a business grows larger, they will take on specialist staff for some more technical roles.
A larger business may hire their own accountancy staff, where as a smaller business cannot do that.

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9
Q

What are the benefits of Financial EOS?

A

> Small businesses find it hard to obtain finance or cost of finance is quite often high.
Small business perceived as being riskier than larger businesses that have developed a good track record.
Larger firms find it easier to find potential lenders and to raise money at lower interest rates.

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10
Q

What is increases market power over customers and suppliers?

A

> Want to grow maybe to reduce the power of supplier and customers.
The short-medium term objective which flows from the term objective of the busses to increase profitability.
limit power of customer to reduce competition.
Reduce power of suppliers

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11
Q

what is increased market share and brand recognition?

A

> In dynamic and competitive markets, businesses may seek to achieve increased market share.
Other businesses may seek to buy other businesses in the same industry in order to acquire recognised brands.

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12
Q

What is increased profitability?

A

> Many businesses seek to grow and expand to increase their profitability.
This means they increase their output production becomes cheaper per unit and the whole business becomes more profitable because costs are reduced.

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13
Q

What are the problems with profitability?

A

1)Diseconomies of scale
2)Internal communication
3)Overtaking

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14
Q

What is Diseconomies of scale?

A

> As the business grows, they may expand the scale of production beyond the minimum efficient scale.
At this point, the average costs per unit starts to rise as production rises.

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15
Q

What is Internal DEOS?

A

Communication, co-ordination, motivation.

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16
Q

What is external DEOS?

A

Overcrowding in industrialised areas, traffic congestion, price of land and labour rises.

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17
Q

what is overtaking?

A

> Where a business accepts more orders than it can cope with
This can result in cash flow problems

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18
Q

What is internal communication?

A

> As the size of the workforce increases, there will be less face-to-face communication.
Takes a long time for messages to get through as there are many layers of management.
Less effective communication;
-Means mistakes made
-means more wastage
-Therefore higher average unit.

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19
Q

What is the definition of a merger?

A

> A legal deal to bring two businesses under one board of directors.
The businesses are usually the same size and the name is normally changed

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20
Q

What is the definition of a takeover?

A

> also known as an acquisition
This is a large deal where one larger business purchases a smaller one
If the deal is unwanted by the management or board of directors then this is a “Hostile takeover-over”

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21
Q

What are the reasons for mergers and takeovers?

A

> Tactical (Response)
Strategic (Long-term)

22
Q

What are Tactical reasons for mergers and takeovers?

A

1) Attempt to ensure increased market share
2)Access to technology, staff or intellectual property

23
Q

What are strategic reasons for mergers and takeovers?

A

1)Access to new markets
2)Improved distribution networks
3)Improved brand awareness

24
Q

What are the 4 parts to a Christmas tree wholesaler?

A

> Backwards vertical integration
Conglomerate
Forward vertical integration
Horizontal integration

25
Q

What is backwards vertical integration?

A

Taking over/ merging with a supplier

26
Q

What is conglomerate?

A

Take over a business in a completely different market

27
Q

What is forward vertical integration?

A

Merging or taking over the retail outlet

28
Q

What is horizontal integration?

A

Merging with a business at the same level of the supply chain as you
Sector= service/territory

29
Q

What are financial risks of mergers and takeovers?

A

> Original purchase of cost
Cost of change into a new business
Redundancies of duplicate staff
Cost if it all goes wrong

30
Q

What are financial rewards of mergers and takeovers?

A

> Increased revenue
Economies of scale (EOS)

31
Q

What are problems with mergers and acquisitions?

A

> Clash of cultures
Possible communication problems
Unreliable merger partners
Diseconomies of scale
75% of all mergers fail

32
Q

What is the definition of organic growth?

A

The process of business growth which comes from within the business as opposed to mergers and takeovers.

33
Q

What are organic methods of growth?

A

> New product launches
Expanding into foreign markets
Expansion of workforce
New stores/branches

34
Q

what is new product launches?

A

It keeps the businesses popularity and allows them to expand profit and allows them to become more popular as they look into customers wants bd needs through research and development.
-Increased market share and increased market risks.

35
Q

What are new stores/branches?

A

Invest into growth to be able to deliver with competition

36
Q

What is expanding into foreign markets?

A

Moving into a foreign market means opening as many outlets as you can can in different countries.

37
Q

What is expansion of workforce?

A

-Recruiting more staff and opening more stores/branches and to create a large growing workforce.
-Having planned investments
-Better investments for customers meaning more market share

38
Q

What are advantages of organic growth?

A

> Builds a more noticeable image for the company.
Expansion leads to brand image increasing
Allows them to compete in new and existing markets
Cheaper than merging
Higher production means EOS and lower average costs
More influence comes with more market share.

39
Q

What are disadvantages of organic growth?

A

> Expensive
Expansions
High risk strategy
Long period between investment and return on investment
Growth may be limited and is dependent on reliability of sales forecasts
New markets and countries can be dangerous to enter
-Need to do market research
-What is the demand and the competition

40
Q

What is the definition of reasons for staying small?

A

> Any business with fewer than 250 employees.
Micro businesses with 0-9 employees.

41
Q

What is product differentiation and USP?

A

> Stand out from the competition
Allows them to compete in smaller markets
More likely to manufacture their products by hand rather than machine- less costs but more time needed
Made at home
Competitive advantage- not mass produced
React quicker in the market.

42
Q

What are differentiation strategies of small businesses?

A

> Creates value
Non-price competition
Brand loyalty
No perceived substitutes

43
Q

What is creating value?

A

Highlighting quality or durability of the product

44
Q

what is non-price competition?

A

Focus on other ways of attracting customers such as taste and style

45
Q

What is brand loyalty?

A

Gain customer loyalty

46
Q

What is no perceived substitute?

A

Focuses on quality may give the impression there are suitable substitutes in the market place.

47
Q

what are USP’s of a small business?

A

> Unique selling point
Ways of promoting the features of the product or service of the business, quality, customer service, delivering, price, technical features.

48
Q

What is meant by flexibility in responding to customer needs?

A

> when a small business can gain significant competitive advantage over larger companies if it responds quickly to customer needs.
it can do this by;
-Carrying out research into opinions
-Gaining feedback
-track social media discussions
-collect data on customer transactions
-collaborate with customers to produce new products or service.

49
Q

What is customer service in relations to staying small?

A

> Customers appreciate businesses that give them more for their money, especially when times are though
Efficient service, fast delivering and flexible payment terms will help to persuade customers to spend with them.

50
Q

What is the benefits of small businesses survival through E-Commerce?

A

> Can sell successfully through third party websites such as EBay.
E-Commerce will grow from 14% to 34% of all retail sales.

51
Q

How can staying small make the business more competitive?

A

> can help them define their niche market.
what sets your product apart from competitors.
More flexibility to cater to specific needs.