3.2 business growth Flashcards
define growth
expansion either due to rising sales or by increasing the scale of the enterprise by means of a merger or takeover
what are the 4 objectives of growth
1- achieve economies of scale
2 - increased market power over customers and suppliers
3 - increased market share and brand recognition
4 - increased profitability
how do you calculate economies of scale
total costs of production =
(VC x Output) + FC
Average cost per unit = TC / Output
EOS - financial
large companies benefit from better interest deals on loans and wider sources of cheap finance, so they may attract more investment from shareholders
EOS - marketing
can attract specialist buyers who don’t waste money buying stock that won’t sell
- have specialists staff who ensure sales
- benefit from bulk buying and discounts
EOS - technical
advantages that a firm gains in regards to the production process
- specialist labour workers which improves productivity and reduces average costs
EOS - managerial
have the money and resources to attract specialist and experienced managers who make the most optimum decisions and increase efficiency over time
problems that may arise from growth
- diseconomies of scale
- internal communication
- overtrading
-ve of growth : diseconomies of scale
may expand the scale of production beyond the efficient levels
- average costs per unit start to rise as production increased
- INTERNAL DEOS - could affect communication, co-ordination and motivation
- EXTERNAL DEOS - overcrowding in industrial areas, traffic congestion, price of land and labour rises
define organic growth
process of which business growth comes from within a business
methods of growing organically
increasing the product range
opening new stores or branches
expanding into foreign markets
expansion of the workforce
advantages of organic growth
- avoids all the risks and drawbacks of merging with another business
- cheaper than merging
- retains company culture
- higher production levels means benefits from economies of scale and lower average costs
- more influence would increase market share
disadvantages of organic growth
- high risk and capital intensive
- long time period between investment and return
- growth may be limited and is dependent on reliability of sales forecasts
- new markets and countries can be risky to operate it without proper research
what is a merger
legal deal to bring two businesses together under one board of directors
- usually the same size business and the name is normally changed
what is a take-over
also known as an acquisition
- where one larger business purchases a smaller one
- if the deal is unwanted by management or board of directors it is known as a hostile takeover
tactical reasons for mergers and takeovers
- attempt to ensure increased marker share
- access to technology, staff or intellectual property
strategic reasons for mergers and takeovers
- access to new markets
- improved distribution networks
- improved brand awareness
what is horizontal integration
businesses operating in the same sector that merge or take over another business in the same sector
vertical integration
occurs when one business in a sector takes over or merges with another business at a different state in the production process within the same industry
what is backward vertical integration
- advantages and disadvantages
occurs when a firm buys out a supplier
+ security of supply
+ could increase job security
+ better coordination between supplier and company
- costs may rise therefore quality could be jeopardised
- sense of morale may be affected
- firms control over supplier may be at a loss
what classes a business as ‘small’
small and medium sized enterprises (SMEs) is any business with less than 250 employees
what are some differentiation strategies of smaller businesses
creates value
non - price competition
brand loyalty
no perceived substitute (focus on quality and design)
USPs of small businesses
unique selling points - factors that make product or service different from others on the market.
- quality
- customer service
- delivery
- price
- design
how can a business be flexible in responding to customer needs
- carrying out market research
- gaining feedback
- tracking social media discussions
- collecting data on customer transactions
- collaborate to produce new products or services
