3.2.1 Growth

Question 1

Define Business Growth

Answer 1

Point at which a Business Needs to Expand and Seek Options to Generate More Profits

Question 2

What are 4 Objectives of Growth

Answer 2

• to Achieve EOS (internal+external)
• Increased Market Power over Customers and Suppliers
• Increased Market Share and Brand Recognition
• Increased Profitability

Question 3

Define EOS and Explain Objective

Answer 3

the Reductions in Average Costs Enjoyed by a Business As Output Increases
- If Production is Less Expensive as Average Costs have Fallen, then This can Increase the Profit Margins Of the Business Or cam Choose to Reduce Prices to Gain More Market Share

Question 4

What are Benefits of EOS in Gaining a Competitive Advantage ?

Answer 4

• by Having More Funds to Buy Stock –> Better Able to get Better Deals by Buying in Bulk
• have More Power
• have More Funds to Pay for Specialist Staff

Question 5

Define difference between Internal EOS and External EOS

Answer 5

Internal EOS - the Cost Reductions Enjoyed by a Single Business As it Grows
External - the Costs Reductions Available to All Businesses as the Industry Grows

Question 6

Name 2 Internal types of EOS

Answer 6

• Technical EOS
• Financial EOS

Question 7

Explain Internal EOS - Technical EOS

Answer 7

• Businesses with Large Scale Production can Use More Advanced Machinery –> may include using mass production techniques, More Efficient Form of Production. Fixed Costs of Purchasing Machinery Spread Over Higher Levels of Output

Question 8

Explain Internal EOS - Financial EOS

Answer 8

Small Businesses Find it Hard to Obtain Finance or the Cost of the Finance is Often Quite High - are Perceived as being Riskeier Than Larger Businesses Large Firms can Benefit from Cheaper Loans and Wider Sources of Cheaper Finance

Question 9

Explain External EOS - Labour

Answer 9

• Concentration of Firms -> Build Up of a Labour Force Equipped with Skills Required by Industry.
  Training Costs may be Reduced if Workers have Gained Skills at Another Firm in the Same Industry.

Question 10

Explain Objective of Growth - Increased Market Power

Answer 10

Short- Medium Term Objective which Flows from the Longer Term Objective of the Business to Increase Profitability

• Customers - a Dominant Business may be Able to Charge Higher Prices If Competition in the Market is Limited. In Absence of Choice, Customers are Forced to Pay Higher Prices
• Suppliers = sometimes a Business can Dominate its Suppliers - e.g. may be Able to Force the Costs of Materials and Commerical Services Down If it Buys Large Quantities from Relatively Small Suppliers

Question 11

Explain Objective of Growth - Increased Market Share & Brand Recognition

Answer 11

• as Business Grows, Market Share likely to Grow -> gives them More Power.
• also Benefit from Having Greater Brand Recognition
• as Business gets Larger -> Customers become more Brand Aware of Brand Name as See the Brand Advertised
  Brand becoming Stronger means : can Charge Higher Prices, Customer Loyalty

Question 12

Explain Objective of Growth - Increased Profitability

Answer 12

Larger Businesses Tend to make Bigger Profits than Smaller ones as Profit Grow, Returns to the Owners Also Grow If Business Grows and Increases Profitability -> has More Profit For Investment and Innovation -> Allows Business to Develop and Launch New Products and make Acquisitions

Question 13

What are 3 Problems Arising from Growth

Answer 13

• Diseconomies of Scale
• Internal Communication
• Overtrading

Question 14

Explain Problem Arising from Growth - Disecominies of Scale

Answer 14

• as Business Growth, may Expand Scale of Production -> Average Costs per Unit Rises as Production Rises
• Internal DEOS : motivation, co-ordination

Question 15

Explain Lack of Co-ordination through DEOS

Answer 15

• as Company Grows and Takes on New Staff, Makes New Products Buys New Premises etc - All Needs to be Coordinated - all Resources Need to be Controlled so Operations Run Smoothly
• Workers may Need Monitoring which Adds to Cost -> may Need More Managers which Increases Average Cost per Unit

Question 16

Explain Problem Arising from Growth - Overtrading

Answer 16

• if Business Grows to Fast, might Suffer from Overtrading
• occurs When a Business Tries to Fund a Large Volume of New Businesses Without Sufficient Resources
• Results in Running Out of Cash, and can potentially collapse
• Most Likely to Occur If a Business Doesn’t Have Enough Capital, means Business is Trading wth Insufficient Capital, Doesn’t have Enough Cash to Buy Resouces Needed to Meet the Growing Orders

Question 17

Explain Problem Arising from Growth - Internal Communication

Answer 17

• as Size of Workforce Increase, 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, More Wastage -> Higher Average unit Costs