3.2 Business Growth Flashcards
Name 4 reasons why businesses grow
-to increase profitability; growth means ^ custokmers -> ^ revenue -> ^ profit
-to achieve economies of scale;
-increased market power over customers & suppliers
-increased market share and brand recognition
Name 5 problemes that sometimes arise from growth
-diseconomies of scale
-poor internal communication
-poor employee motivation
-poor managerial co-ordination
-overtrading
What is diseconomies of scale
inefficiencies related to growth -> upward pressure on unit costs
What is inorganic growth
growth that occurs due to taking over/ merging with another business
What is organic growth
growth which takes place internally within the business
Name 3 methods of organic growth
business can finance the griwth through retained profits
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Name 3 advantages of organic growth
-leaders influence stays strong; greater chance of preserving original organisational culture -> likely to be successful -> has put company in position to grow
-reduction of financial risk;
-secure career paths;
Name 3 disadvantages of organic growth
-limited speed leading to limited size
-failing to fully exploit a short-lived opportunity
-predictability
What are synergies
benefits of 2 things coming together that could not exist when they are seperate
-e.g. economies of scale reuslting from a merger
Name 4 common reasons for mergers & takeovers
-growth-
-cost synergies
-diversification
-market power
What is a merger
when 2 businesses agree to come together to create brand new single business
What is a takeover
when 1 business buys over 50% of another businesses shares
Name the 3 types of integration
-vertical integration- merger/ takeover involving 2 companies at diff stages of same supply chain:
forward vertical integration; when company buys customer
backward vertical integration; when company buys supplier
-horizontal integration- when business buys/ merges with rival
-conglomerate integration- where merger/ takeover involve coming together of 2 unrelated businesses
Name 2 benefits & disadvantages of backward vertical
+secures supplies
+should lower the cost of supplies
-can tie the business into a supplier that may not always offer the best option
Name 2 benefits & disadvantages of forward vertical
+guaranteed outlet for the businesses products
-can lead to diseconomies
-could be confusion over which firms culture should be adopted in some areas
Name benefits & disadvantages of horizontal integration
+likely to provide clear economies of scale
-xan lead to diseconomies
-could be confusion over which firms culture should be adopted in some areas
Name benefits & disadvantages of conglomerate
+diversifies the business - spreading risk into diff markets
-potential faiure to understand target company as it will be in an unfamiliar market
-may distract management from original business due to unfasmiliarity and slowness to integrate
How can Ansoff’s Matrix be used for decisions concerning takeovers
-matrix allows for analysis of the market & products being sold by firm being taken over
Financial rewards of mergers and takeovers?
A
- Speedy Growth –> large market share, lower costs resulting from economies of scale, more market power and higher profitability
- Increased profitability
Name 3 issues of rapid growth inorganically
-with new management structures in place staff may find themsleves working for a new boss
-staff may need to adjust to operate in new business culture; may feel uncomfortable
-customers & suppliers -> may feel discomforted by dealing with new suppliers and customers
How do businesses survive in competitive markets
-lowests costs due to price competition evident
-strong point of differentiation due to product innovation being common
Name 4 reasons for a business to stay small
product differntiastion & USPS ->when business finds point of differentiation, selling to niche market -> can spend all time deepening point of differentiation -> don’t need to grow
flexibility in responding to customer needs -> fewer layers between bosses & managment, communications quicker -> descision-makers liekly to know about changes sooner
greater customer service -> staff part of a small close-knit workforce -> understand how performance affects success of business -> more motivated -> better service
e-commerce -> ability to reach a global amrket -> allows for specialist niche market -> which wouldn’t be large enough to support business on national scale
business objectives and size
Why do firms grow by increasing profitability
- growth means more customers
- more customers more revenue
- more profit
