3.2.1 Growth Flashcards
How is business size measured
Either;
Revenue, profit, market share, number o employees or assets
What are some of the reasons why businesses may want to grow?
- Increase profitability and use these profits to reinvest in the business = stimulates growth
- Increase market share= higher market power
- Economies of scale= Decreases costs and lead to higher profit margins
Inorganic growth
Includes mergers or takeovers
The main motive is financial rewards
Part of strategic or tactical decisions
Mergers (inorganic growth)
Two businesses join together to make one business
Shares are transferred to the shareholders of the business
Takeovers (inorganic growth)
(acquisitions)
When one business buys enough shares in another so it has more that 50% of total shares
Horizontal inorganic growth
Happens when a business combines with another business in the same industry at the same stage of the production process
Reduces the competiton
Vertical inorganic growth
Occurs when another business integrates with another in the same industry but at a different production process
Primary sector
Represents companies that are involved in extracting natural resources and agriculture.
Secondary sector
Companies involved in manufacturing, construction, and processing producing goods that use the resources obtained from companies within the primary sector.
Tertiary sector
The sector of the economy that concerns services.
Organic growth
Doesn’t involve any other businesses
Come up with new strategies to sell or produce new products
Reinvest products with retained profit
Slower and more gradual
Advantages of organic growth
- Can maintain management style, culture and ethics
- Less risk and usually financed using profits
- Can manage and control growth
- Workers efficiency, productivity and morale remain high
Disadvantages of organic growth
- Can take a long time
- Market size isn’t affected so the business is restricted
- May miss out on opportunities for ambitious growth
